Valuing Companies by Discounted Cash Flows

International Journal of Management (IJM), International Association for Engineering and Management Education, Vol. 4, Issue 2, 2013

16 Pages Posted: 5 Jul 2013

See all articles by Nisarg A Joshi

Nisarg A Joshi

Shri Chimanbhai Patel Institute of Management & Research

Dr.Jay Desai

B.K.School of Business Management, Gujarat University

Arti Trivedi

Shri Chimanbhai Patel Institute of Management & Research

Date Written: July 3, 2013

Abstract

This paper shows valuation methods based on equity cash flow; free cash flow; capital cash flow; APV (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 EVA.

All 10 methods always give the same value. This result is logical, as all the methods analyze the same reality under the same hypotheses; they differ only in the cash flows or parameters 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: Valuation, DCF, Discounting, Cash Flow, WACC, Free Cash Flow

Suggested Citation

Joshi, Nisarg A and Desai, Jay and Trivedi, Arti, Valuing Companies by Discounted Cash Flows (July 3, 2013). International Journal of Management (IJM), International Association for Engineering and Management Education, Vol. 4, Issue 2, 2013 , Available at SSRN: https://ssrn.com/abstract=2289158

Nisarg A Joshi (Contact Author)

Shri Chimanbhai Patel Institute of Management & Research ( email )

Opp. Karnavati Club,
S.G. Highway
Ahmedabad, 380015
India

Jay Desai

B.K.School of Business Management, Gujarat University ( email )

Navrangpura
Ahmedabad, Gujarat 380015
India
+91-79-26301342 (Phone)

HOME PAGE: http://www.jaydesai.net

Arti Trivedi

Shri Chimanbhai Patel Institute of Management & Research ( email )

Opp. Karnavati Club
S G Highway
Ahmedabad, 380015
India
+91-79-30076616 (Phone)

HOME PAGE: http://www.artitrivedi.com

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