Company Valuation Using the DCF Method and CAPM: You Shouldn't Trust the Result

5 Pages Posted: 31 Mar 2023

See all articles by Werner Gleißner

Werner Gleißner

Dresden University of Technology - Faculty of Economics and Business Management

Endre Kamaras

FutureValue Group AG

Date Written: March 22, 2023

Abstract

Today, the determination of a company's value is mostly based on the discounted cash flow method (DCF method). In doing so, planned values of the cash flows (or income/flow-to-equity) provided by the company are usually discounted to the present with a calculated a discount rate based on the capital asset pricing model (CAPM). The CAPM cost of capital1 is based on the so- called beta factor, which in turn is derived from historical fluctuations in stock returns (of the company itself or companies in a peer group). The CAPM-world assumes perfect capital market thus refrains from rating and financing restrictions and the resulting insolvency risks.

Keywords: DCF valuation, CAPM, simulation-based valuation

Suggested Citation

Gleißner, Werner and Kamaras, Endre, Company Valuation Using the DCF Method and CAPM: You Shouldn't Trust the Result (March 22, 2023). Available at SSRN: https://ssrn.com/abstract=4396512 or http://dx.doi.org/10.2139/ssrn.4396512

Werner Gleißner (Contact Author)

Dresden University of Technology - Faculty of Economics and Business Management ( email )

Mommsenstrasse 13
Dresden, D-01062
Germany

Endre Kamaras

FutureValue Group AG ( email )

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

Paper statistics

Downloads
330
Abstract Views
888
Rank
173,851
PlumX Metrics