Valuation Composition

Collateral Valuation: Discounted Cash Flow and Residual Income Models


Value plays a very important role when companies are aiming to increase their benefit, raise cash, acquire an additional firm or sell a subsidiary, also each time a company makes a decision to go general public. Managers, buyers and investors need to have one of the most accurate and reliable info in order to make decisions, that is why value is a critical exercise in corporate financial.

It is pretty evident that whatever the reason, sooner or later there will be a question of how much a firm will probably be worth and very often the answer will never be easy. Hamadi and Hamadeh (2012, g. 104) claim that " determining firm's worth has recently be a little more problematic”.

Valuation is, certainly, a complicated process. It requires consuming consideration many different factors, making a number of assumptions and measurements and of course selecting the most appropriate valuation approach. Collateral Valuation may be the process of calculating the value placed by a firm's equity slots; it should not be mistaken for Enterprise Valuation, which is the overall value of any firm. They can be two several values via two different concepts. With a clear knowledge of it, we are able to include the appropriate funds flows and discount rates to the valuation examination.


Reduced Cash Flow Types

This kind of models measure the value of equity by discounting the amount flows a strong generates due to the equity slots, dividends or perhaps equity cost-free cash flow (equity FCF), for their necessary rate of return. Right now, the question would be: which cashflow should all of us discount? Damodaran (Damodaran On the net, 2002) gives a straightforward response. We should low cost dividends to get firms which in turn pay dividends which might be close to the equity FCF more than a long period and for these companies wherever equity FCF is challenging to determine. On the other hand, we should discount equity FCF for companies that pay dividends which are considerably higher...

Sources: Hamadi, H., & Hamadeh, M. (2012). Equity Value: A comparison between Discounted

Cash Flow Designs and the Revenue Models. Intercontinental Journal of Business,

Accounting, and Finance, 6(2), 104-115. Gathered from

Martin, M. D., & Titman, S i9000. (2011). Valuation: The Skill and Technology of Company Investment Decisions (2nd Ed). Boston, MUM: Pearson Education, Inc.

Pinto, J. At the., Henry, E., Robinson, Big t. R., & Stowe, T. D. (2010). Equity Property Valuation (2nd Ed). Hoboken, NJ: Steve Wiley & Sons, Inc.

Ross, T. A., Westerfield, R. T., & Jaffe, J. (2010). Corporate Fund (9th Ed). New York, NYC: McGraw-Hill/Irwin