European Business Schools Librarian's Group
IESE Research Papers,
IESE Business School
No D/449: Company valuation methods. The most common errors in valuations
Pablo Fernández ()
Additional contact information
Pablo Fernández: IESE Business School, Postal: IESE Business School. Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
Abstract: In this paper, we describe the four main groups comprising the most widely used company valuation methods: balance sheet-based methods, income statement-based methods, mixed methods, and cash flow discounting-based methods. The methods that are conceptually "correct" are those based on cash flow discounting. We will briefly comment on other methods since -even though they are conceptually "incorrect"- they continue to be used frequently. We also present a real-life example to illustrate the valuation of a company as the sum of the value of different businesses, which is usually called the break-up value. We finish the paper with a list of the most common errors that the author has detected in the more than one thousand valuations he has had access to in his capacity as business consultant and teacher.
Keywords: Value; price; free cash flow; equity cash flow; market value
30 pages, January 11, 2002
Full text files
DI-0449-E.pdf
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