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Valuing companies by cash flow discounting: ten methods and nine theories

Pablo Fernández (IESE Business School, University of Navarra, Madrid, Spain)

Managerial Finance

ISSN: 0307-4358

Publication date: 2 October 2007

Abstract

Purpose

–

The aim of this paper is to answer the question: Do discounted cash flows valuation methods provide always the same value?

Design/methodology/approach

–

This paper is a summarized compendium of ten methods including: free cash flow; equity cash flow; capital cash flow; adjusted present value; business's risk‐adjusted free cash flow and equity cash flow; risk‐free rate‐adjusted free cash flow and equity cash flow; economic profit; and economic value added.

Findings

–

All ten methods always give the same value.

Research limitations/implications

–

The disagreements among the various theories of firm valuation arise from the calculation of the value of the tax shields (VTS). The paper analyses nine different theories.

Originality/value

–

The paper is an analysis of ten methods of company valuation using discounted cash flows and nine different theories about the VTS.

Keywords

  • Cash flow
  • Organizations
  • Discounted cash flow

Citation

Fernández, P. (2007), "Valuing companies by cash flow discounting: ten methods and nine theories", Managerial Finance, Vol. 33 No. 11, pp. 853-876. https://doi.org/10.1108/03074350710823827

Download as .RIS

Publisher

:

Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited

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