Timanco S.A.: Unpaid Taxes, Losses Carried Forward, Foreign Debt, Presumptive Income and Adjustment for Inflation: Matching DCF and EVA©
42 Pages Posted: 24 Jul 2010
Date Written: July 22, 2010
There are methods to match value added approaches (Residual Income Method, RIM and Economic Value Added, EVA) with discounted cash flow methods, DCF. In this note we use a real life case from an emerging country to illustrate the matching, with complexities such as unpaid taxes, losses carried forward, foreign exchange debt, presumptive income and inflation adjustments to the Financial Statements. In all methods we use market values to calculate the discount rates.
We stress what have been said before: for a single period, RI or EVA does not measure value. Hence we include cash flow expectations and market values in the calculation of discount rates and values.
Keywords: Economic Value Added, EVA, Market Value Added, MVA, Residual Income, economic profit, free cash flows, market value of equity, market value of firm, Losses carried forward, exchange losses, presumptive Income, inflation adjustments to the Financial Statements
JEL Classification: M21, M40, M46, M41, G12, G31, J33
Suggested Citation: Suggested Citation