Valuing Companies by Cash Flow Discounting: Only APV Does Not Require Iteration

18 Pages Posted: 19 Oct 2020

Date Written: August 27, 2020

Abstract

The most used methods for valuing companies by Cash Flow Discounting are equity cash flow, free cash flow, capital cash flow and APV (Adjusted Present Value). Only APV does not require iteration All four methods, if properly applied, 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. Many valuations are incorrect because the authors do not iterate and, therefore, the four methods do not provide the same value.

Keywords: discounted cash flows, APV, WACC, Equity Cash Flow, beta, iteration

JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, Valuing Companies by Cash Flow Discounting: Only APV Does Not Require Iteration (August 27, 2020). Available at SSRN: https://ssrn.com/abstract=3682128 or http://dx.doi.org/10.2139/ssrn.3682128

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,801
Abstract Views
3,553
Rank
14,457
PlumX Metrics