An alternative approach to firms’ evaluation: expert systems and fuzzy logic

Carlo Alberto Magni

MPRA Paper from University Library of Munich, Germany

Abstract: Discounted Cash Flow techniques are the generally accepted methods for valuing firms. Such methods do not provide explicit acknowledgment of the value determinants and overlook their interrelations. This paper proposes a different method of firm valuation based on fuzzy logic and expert systems. It does represent a conceptual transposition of Discounted Cash Flow techniques but, unlike the latter, it takes explicit account of quantitative and qualitative variables and their mutual integration. Financial, strategic and business aspects are considered by focusing on twenty-nine value drivers that are combined together via “if-then” rules. The output of the system is a real number in the interval [0,1], which represents the value-creation power of the firm. To corroborate the model a sensitivity analysis is conducted. The system may be used for rating and ranking firms as well as for assessing the impact of managers’ decisions on value creation and as a tool of corporate governance.

Keywords: Firms’ evaluation; fuzzy logic; expert system; rating; acquisition; sensitivity analysis (search for similar items in EconPapers)
JEL-codes: C02 C51 C67 C88 G12 G31 G34 M21 (search for similar items in EconPapers)
Date: 2004-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in International Journal of Information Technology and Decision Making 5.1(2006): pp. 195-225

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:7879

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