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Valuation Models Applied to Value-Based Management—Application to the Case of UK Companies with Problems

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journal contribution
posted on 11.10.2021, 09:22 by Marcel Ausloos
Many still rightly wonder whether accounting numbers affect business value. Basic questions are “why?” and “how?” We aim at promoting an objective choice on how optimizing the most suitable valuation methods under a “value-based management” framework through some performance measurement systems. First, we present a comprehensive review of valuation methods. Three valuations methods, (i) Free Cash Flow Valuation Model (FCFVM), (ii) Residual Earning Valuation Model (REVM) and (iii) Abnormal Earning Growth Model (AEGM), are presented. We point out advantages and limitations. As applications, the proofs of our findings are illustrated on three study cases: Marks & Spencer’s (M&S’s) business pattern (size and growth prospect), which had a recently advertised valuation “problem”, and two comparable companies, Tesco and Sainsbury’s, all three chosen for multiple-based valuation. For the purpose, two value drivers are chosen, EnV/EBIT (entity value/earnings before interests and taxes) and the corresponding EnV/Sales. Thus, the question whether accounting numbers through models based on mathematical economics truly affect business value has an answer: “Maybe, yes”

History

Citation

Forecasting 2020, 2(4), 549-565; https://doi.org/10.3390/forecast2040029

Author affiliation

School of Business

Version

VoR (Version of Record)

Published in

Forecasting

Volume

2

Issue

4

Pagination

549 - 565

Publisher

MDPI

issn

2571-9394

eissn

2571-9394

Copyright date

2021

Available date

11/10/2021

Language

English