A Unified Valuation Framework for Dividends, Free Cash Flows, Residual Income, and Earnings Growth Based Models
21 Pages Posted: 22 Feb 2006
Date Written: February 14, 2006
Valuation techniques are important to practitioners and academics. Although theoretically equity value equals the present value of expected dividends, in practice, higher-level metrics such as free cash flows, earnings, and book values are used for valuation. This paper helps us understand these metrics by: (1) providing a common and simple theoretical framework that shows how these alternative valuation metrics can be used instead of dividends; (2) using the common framework to provide the theoretical underpinnings of earnings-based valuation.
Keywords: Valuation, Discounting, DDM, DCF, Free Cash Flows, Earnings growth
JEL Classification: G12, G24, G31, M41
Suggested Citation: Suggested Citation