Terminal Value Calculation In DCF Valuation Models : an Empirical Verification

• Autorzy: Adam Behr , Paweł Mielcarz , Dmytro Osiichuk
• Języki publikacji: EN

Abstrakty

EN

The paper presents an empirical verification of the main assumptions underlying the calculation of terminal value in DCF valuation models. The test results suggest that the volatility of free cash flows and the dynamism of the operating environment do not allow us to make a reliable long-term forecast of value creation potential of the public companies in Poland. Regardless of their organic growth phase, the overwhelming majority of the sampled firms are evidenced to exhibit extreme year-on-year fluctuations of sales, investments and cash flows over the short- and medium-term observation windows. The variability of operating results and the probabilistic nature of company-level fundamentals may preclude the possibility of constructing a reliable cash flow forecast for the purposes of a DCF valuation. This methodological issue appears to pose a particular challenge during the calculation of terminal value, which is heavily dependent on highly subjective and uncertain steady-state fundamentals. Therefore, the predictive power of the deterministic DCF models may be reduced to a snapshot of the current market sentiment regarding a particular stock. The paper postulates that a further discussion on the tenets of terminal value calculation may be necessary in order to overcome the existing flaws and increase the accuracy of valuation models. We contribute to this discussion by outlining the principal methodological and theoretical issues which challenge the practicing valuators at the stage of terminal value calculation. Our conclusions may help to shed light on the problems of market short-termism, and high inconstancy of investment recommendations. (original abstract)

Słowa kluczowe

EN

Pricing models; Empirical researches

PL

Modele wyceny; Badania empiryczne

• Czasopismo: e-Finanse
• Rocznik: 2018
• Tom: 14
• Numer: nr 1
• Strony: 27--38

Twórcy

autor

Adam Behr

autor

Paweł Mielcarz

• Kozminski University, Warsaw, Poland

autor

Dmytro Osiichuk

• Kozminski University, Warsaw, Poland

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Identyfikatory

DOI

10.2478/fiqf-2018-0003