A Unified Valuation Framework for Dividends, Free Cash Flows, Residual Income, and Earnings Growth Based Models

21 Pages Posted: 22 Feb 2006

See all articles by Dhananjay (Dan) K. Gode

Dhananjay (Dan) K. Gode

New York University (NYU) - Department of Accounting

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: February 14, 2006

Abstract

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

Gode, Dhananjay (Dan) K. and Ohlson, James A., A Unified Valuation Framework for Dividends, Free Cash Flows, Residual Income, and Earnings Growth Based Models (February 14, 2006). Available at SSRN: https://ssrn.com/abstract=884310 or http://dx.doi.org/10.2139/ssrn.884310

Dhananjay (Dan) K. Gode (Contact Author)

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States
212-998-0021 (Phone)
212-995-4004 (Fax)

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

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