This paper investigates the shareholders’ possibility to evaluate firm’s value. The fact, that due to the different objectives of the shareholders and the managers, the shareholder value is a suitable figure to synchronize different interests will be shown. Having shown
two approaches to calculate shareholder value, these approaches will be assessed, if they provide a suitable calculation of the shareholder value. The discounted cash-flow approach (DCF), basing on prospective cash-flows, is a suitable method to determine shareholder value. The realoption approache extends the DCF-approach by the flexibility component. Regarding the occasions of evaluation, the calculating shareholder can use both approaches, but he has to be sure about the approaches’ boundaries.
Table of Contents
- EXECUTIVE SUMMARY
- TABLE OF CONTENTS
- LIST OF FIGURES
- 1 INTRODUCTION
- 2 THE SHAREHOLDER VALUE APPROACH
- 2.1 Market value orientation
- 2.2 Shareholder Value as firms' objective
- 3 EVALUATION OF FIRMS
- 3.1 Occasions of evaluation
- 3.2 Diversity of methods
- 4 METHODS OF EVALUATION
- 4.1 Discounted Cash-flow
- 4.1.1 Entity approach
- 4.1.2 Equity approach
- 4.2 Real options approach
- 4.2.1 Financial option price models
- 4.2.2 Flexibility
- 4.1 Discounted Cash-flow
- 5 ECONOMIC ASSESSMENT
- 6 CONCLUSION
- BIBLIOGRAPHY
- ITM-CHECKLISTE
Objectives and Key Themes
This paper aims to examine how shareholders can evaluate a firm's value, demonstrating that shareholder value is a suitable metric for aligning the potentially differing objectives of shareholders and managers. It then assesses two approaches for calculating shareholder value: the discounted cash-flow (DCF) approach and the real options approach. The effectiveness and limitations of each approach in providing shareholders with a useful valuation are analyzed.
- Shareholder value as a means of aligning shareholder and manager objectives.
- Evaluation of firms and the various occasions requiring valuation.
- Assessment of the discounted cash-flow (DCF) approach for determining shareholder value.
- Analysis of the real options approach as an extension of the DCF approach.
- Economic factors influencing firm valuation.
Chapter Summaries
1 Introduction: This chapter sets the stage by highlighting the current economic climate—characterized by globalization, mergers and acquisitions, volatile markets, and the need for accurate firm valuations. It emphasizes the importance of valuation methods in addressing issues such as sales transactions, tax assessments, and capital raising. The increasing popularity of the shareholder value approach, focusing on maximizing equity capital, is also noted. The chapter concludes by stating the paper's objective: to demonstrate the impact of selected evaluation methods on shareholder value and assess their usefulness in providing shareholders with a practical valuation.
2 THE SHAREHOLDER VALUE APPROACH: This chapter delves into the shareholder value approach, explaining its core principle of maximizing equity capital and highlighting its proponents. It establishes the approach's significance in the context of diverse economic factors impacting firm value, such as short product lifecycles and intangible assets. The chapter likely discusses market value orientation and the role of shareholder value as a firm's objective, laying the groundwork for subsequent chapters examining specific valuation methods.
3 EVALUATION OF FIRMS: This chapter likely explores the various circumstances under which firm valuations are necessary. It addresses the diversity of valuation methods available and provides context for the methods detailed in later chapters. This chapter serves as a bridge, connecting the theoretical framework of shareholder value to the practical application of valuation methods.
4 METHODS OF EVALUATION: This chapter constitutes the core of the paper, presenting detailed explanations of two prominent firm valuation methods: the discounted cash-flow (DCF) approach and the real options approach. The DCF approach, based on projected cash flows, is broken down into entity and equity approaches. The real options approach is presented as an enhancement of DCF, incorporating the element of flexibility. The chapter likely discusses the advantages, limitations, and applicability of each method in different scenarios.
5 ECONOMIC ASSESSMENT: This chapter likely provides an analysis of the economic factors influencing firm valuation, bringing together the theoretical and practical aspects of the preceding chapters. It integrates the impact of these factors on the chosen valuation methods, offering a critical assessment of their effectiveness in different economic conditions. The significance of understanding and accounting for these economic dynamics within the valuation process is explored.
Keywords
Shareholder value, firm valuation, discounted cash-flow (DCF) approach, real options approach, equity capital, market value, mergers and acquisitions, economic assessment, flexibility, valuation methods.
Frequently Asked Questions: A Comprehensive Language Preview
What is this document about?
This document is a comprehensive preview of a paper examining firm valuation from a shareholder value perspective. It includes a table of contents, objectives and key themes, chapter summaries, and keywords. The paper focuses on two primary valuation approaches: the discounted cash-flow (DCF) approach and the real options approach. It analyzes their effectiveness and limitations in providing shareholders with a useful valuation, considering various economic factors.
What are the main objectives of the paper?
The paper aims to demonstrate how shareholders can evaluate a firm's value using shareholder value as a metric to align the objectives of shareholders and managers. It assesses the DCF and real options approaches for calculating shareholder value and analyzes their effectiveness and limitations.
What are the key themes explored in the paper?
Key themes include shareholder value as a means of aligning shareholder and manager objectives; the evaluation of firms and occasions requiring valuation; an assessment of the DCF approach for determining shareholder value; an analysis of the real options approach as an extension of DCF; and economic factors influencing firm valuation.
What are the different chapters and their content?
The paper is structured as follows: Chapter 1 introduces the context of firm valuation; Chapter 2 explores the shareholder value approach; Chapter 3 discusses the occasions and methods of firm evaluation; Chapter 4 details the DCF and real options approaches; Chapter 5 provides an economic assessment; and Chapter 6 concludes the paper.
What is the Discounted Cash-Flow (DCF) approach?
The DCF approach is a valuation method based on the present value of projected future cash flows. The paper breaks it down into entity and equity approaches.
What is the real options approach?
The real options approach is presented as an enhancement to the DCF approach, incorporating the element of flexibility in decision-making, using financial option price models.
What economic factors are considered?
The paper considers various economic factors influencing firm valuation, such as globalization, mergers and acquisitions, volatile markets, short product lifecycles, and intangible assets. It assesses the impact of these factors on the effectiveness of the chosen valuation methods.
What are the keywords associated with this paper?
Keywords include shareholder value, firm valuation, discounted cash-flow (DCF) approach, real options approach, equity capital, market value, mergers and acquisitions, economic assessment, flexibility, and valuation methods.
What is the overall purpose of this preview?
This preview provides a concise overview of the paper's content, allowing readers to quickly understand its scope, methodology, and key findings. It serves as a guide for those interested in learning more about firm valuation from a shareholder value perspective.
- Quote paper
- Andre Wiedenhofer (Author), 2007, The value of a firm, Munich, GRIN Verlag, https://www.grin.com/document/76338
