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Valuation Approaches and Metrics: A Survey of the Theory and Evidence

  • Aswath Damodaran 1

[1]Aswath Damodaran, Stern School of Business, New York University, adamodar@stern.nyu.edu

Short description

Valuation Approaches and Metrics focuses on the theory and practice of valuation of companies and stocks, providing an invaluable overview of the topic from both a practical and scholarly perspective.

Keywords

Valuation, Discounted cash flow, Capital markets

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Table of contents

1 Introduction
2 Discounted Cash Flow Valuation
3 Liquidation and Accounting Valuation
4 Relative Valuation
5 Directions for Future Research
6 Conclusion
References

Foundations and Trends® in Finance

(Vol 1, Issue 8, 2005, pp 693-784)

DOI: 10.1561/0500000013

Abstract

Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision rules in capital budgeting. In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years. In the second part of the paper, we examine relative valuation models and, in particular, the use of multiples and comparables in valuation and evaluate whether relative valuation models yield more or less precise estimates of value than discounted cash flow models. In the final part of the paper, we set the stage for further research in valuation by noting the estimation challenges we face as companies globalize and become exposed to risk in multiple countries.

Table of contents

Introduction
Discounted cash Flow Valuation
Liquidation and Accounting Valuation
Relative Valuation
Directions for New Research
Conclusions
References
Cover image for Valuation Approaches and Metrics

Valuation Approaches and Metrics:

A Survey of the Theory and Evidence

102 pages

DOI: 10.1561/9781601980151

E-ISBN: 978-1-60198-015-1

ISBN: 978-1-60198-014-4

Description

Valuation Approaches and Metrics focuses on the theory and practice of valuation of companies and stocks, providing an invaluable overview of the topic from both a practical and scholarly perspective. Valuation Approaches and Metrics reviews the finance literature on valuation and presents three approaches to valuation: discounted cash flow valuation relating the value of an asset to the present value of expected future cash flows on that asset; liquidation and accounting valuation built around valuing the existing assets of a firm using accounting estimates of value or "book value"; relative valuation estimating the value of an asset by looking at the pricing of 'comparable' assets relative to a common variable like earnings, cash flows, book value or sales. Valuation Approaches and Metrics should be required reading for both finance practitioners and researchers.