Issues in Firm Valuation

Abstract

Creating firm value or shareholders value is expected for company management, however, the concept of firm value is vague. Ingenuity, subjectivity and inference are required for estimation of free cash flow and cost of capital. The amount of intangibles measured using DCF differs significantly from amounts using other models. While R&D assets are major components of intangibles, brand assets are minor. In terms of the relationship between shareholder value and stock price, terminal value has a stronger relationship than period value; and shareholders value has a stronger relationship in the Residual Income Model (RIM) than in DCF. We should measure flexibly firm value by taking account of a firm's individuality rather than simplistic statistical analysis.