Iterations in company valuation - EMCINSMED PLC
Ładowanie...
Data
2010
Autorzy
Tytuł czasopisma
ISSN czasopisma
Tytuł tomu
Wydawca
Abstrakt
DCF is the most respected method of company valuation. However, it does have a flaw related to the fact that
the weights (share of debt and equity in total financing) that are used are based on book values. The problem
may be overcome by using a technique based on iterations. In a real-life case, when one has to deal with
numerous parameters and time periods, a numerical solution seems to be the only feasible approach. It is a
chain of formulae that becomes so integrated that the information between cash flows and cost of capital moves
freely. Loops run along columns (from V to WACC, and from E to k) and lines (from one year to another). The
cost of capital “tracks” the capital structure and changes accordingly. The valuation is recursive, going
backwards in time. In general, the recursive method of company evaluation overcomes a fundamental problem
that is often ignored by many other methods: the fact that the cost of capital depends on the financial structure.
Here in the paper, the valuation of Emcinsmed S.A. company is done in order to present the i-DCF valuation
method. The company is highly leveraged, hence it serves as a good example.
Opis
Artykuł dostępny również na stronie : http://www.e-finanse.com/artykuly_eng/164.pdf
Słowa kluczowe
company valuation, DCF, iterations
Cytowanie
The Quarterly "e-Finanse" : finansowy kwartalnik internetowy, 2010, nr specjalny, s. 14-26