IESE Research Papers,
IESE Business School

Abstract: This paper shows that ten methods of company valuation using discounted cash flows (WACC; equity cash flow; capital cash flow; adjusted present value; residual income; EVA; business's risk-adjusted equity cash flow; business's risk-adjusted free cash flow; risk-free-adjusted equity cash flow; and risk-free-adjusted free cash flow) always give the same value when identical assumptions are used. This result is logical, since all the methods analyze the same reality using the same assumptions; they differ only in the cash flows taken as the starting point for the valuation. We present all ten methods, allowing the required return to debt to be different from the cost of debt. Seven methods require an iterative process. Only the APV and business risk-adjusted cash flows methods do not require iteration.

Keywords: discounted cash flow valuation; valuation; equity cash flow; free cash flow

JEL-codes: G12; G31; M21

27 pages, March 17, 2004

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