A COMPARATIVE STUDY OF DISCOUNTED CASH FLOW AND RESIDUAL INCOME MODELS FOR BUSINESS VALUATION: CASE STUDY OF A POWER ENERGY COMPANY

Authors

  • Valter Saurin Universidade Federal de Santa Catarina
  • Ana Lúcia Miranda Lopes Universidade do Sul de Santa Catarina
  • Newton Carneiro Affonso da Costa Junior Universidade Federal de Santa Catarina

Abstract

Among business valuation methodologies, the most widely used models are based on discounted cash flow and residual income methodologies. Each model has its own particular characteristics and supplies different information. But, theoretically, they should give equivalent financial results if the same data base is used. The objective of this study is to determine if there are methodological conflicts among the models when the same basic data is used or if the results are the same. A real case analysis of a public utility company was carried out, using the discounted cash flow and the residual income models, the results were compared to the negotiated price, which was adjusted to represent 100% of equity. The results show great differences among the values themselves and with the sales price of the company under study.

KEYWORDS

Business valuation; Investment valuation; Business valuation methodology; Residual income; Discounted cash flow.

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Author Biographies

Valter Saurin, Universidade Federal de Santa Catarina

Doutor em Administração pela Fundação Getulio Vargas (FGV). Professor do Departamento de Ciências da Administração da Universidade Federal de Santa Catarina (UFSC).

Ana Lúcia Miranda Lopes, Universidade do Sul de Santa Catarina

Doutora em Engenharia da Produção pela Universidade Federal de Santa Catarina (UFSC). Professora do Programa de Pós-Graduação em Administração da Universidade do Sul de Santa Catarina (Unisul).

Newton Carneiro Affonso da Costa Junior, Universidade Federal de Santa Catarina

Doutor em Administração pela Fundação Getulio Vargas (FGV). Professor Associado do Centro Sócio-Econômico da Universidade Federal de Santa Catarina (UFSC).

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Published

2009-04-03

Issue

Vol. 10 No. 1 (2009)

Section

Presentation

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