International Research Journal of Commerce , Arts and Science

 ( Online- ISSN 2319 - 9202 )     New DOI : 10.32804/CASIRJ

Impact Factor* - 6.2311


**Need Help in Content editing, Data Analysis.

Research Gateway

Adv For Editing Content

   No of Download : 14    Submit Your Rating     Cite This   Download        Certificate

EQUITY VALUATION USING ACCOUNTING NUMBERS

    1 Author(s):  NITIKA AGGARWAL

Vol -  5, Issue- 12 ,         Page(s) : 154 - 171  (2014 ) DOI : https://doi.org/10.32804/CASIRJ

Abstract

This research primarily focuses on the valuation methodologies used to value firms with high and low intangibles as scaled by the total assets of the firm. In doing so a structured positive approach is applied in all chapters to explain the outcomes. Various statistical tools and databases have also been used to support the results and give them a strong base. Chapter two gives a brief overview of valuation literature explaining the different valuation models in practice. Chapter three deals with an exhaustive study of a small sample of twenty-one firms and their analyst reports. Strict investigation of the analysts’ reports reveal that Discounted Cash Flow (DCF) model is the most commonly used valuation model across the firms of the sample. However, multiples-based approach has also been used frequently, but DCF supersedes as the dominant model in most of the cases. The analysis is extended to a large sample of 1140 observations in chapter four and involves empirical study to find out the valuation technique that gives the most approximate estimate of price. The mean valuation errors are minimal for the harmonic mean multiple after the REVM model.

1. Alford, A., 1992,The effect of the set of comparable firms on the accuracy of the price earnings valuation method, Journal of Accounting Research, 30(1): 94-108.
2. Amir, E. and Y. Lev, 1996, Value-relevance of non-financial information: the wireless communication industry, Journal of Accounting and Economics, 22: 3-30.
3. Ball, R. and P. Brown, 1968, An empirical evaluation of accounting income numbers, Journal of Accounting Research, 6: 159-178.
4. Baker, R. and R. S. Ruback, 1999, Estimating Industry Multiples, Working paper, Harvard University, 1-30.
5. Barker, R. 1999, The role of dividends in valuation models used by analysts’ and fund managers,European Accounting Review, 8(2): 195-218.
6. Barker, R., 2001, DeterminingValue: Valuation Models and Financial Statements, Prentice Hall.
7. Beaver, W., 1968,The information content of annual earnings announcements, Journal of Accounting Research, 6: 67-92.
8. Beaver, W. and D. Morse, 1978,What determines price-earnings ratios? Financial Analysts Journal, July/August: 65-76.
9. Bhojraj, S. and C. Lee, 2002,Who is my peer? A valuation-based approach to theselection of comparable firms,Journal of Accounting Research, 40: 407-439.
10. Bryan, S., L-S Hwang and S. Lilien, 2001, Assessment of analysts’ target prices,CPA Journal, 71(7): 47-52.
11. Burgstahler, D. and I.Dichev, 1997, Earnings, adaptation and firm value,Accounting Review, (April): 187-215.
12. Choi, Y-S., S. Talib and S. Young, 2007, Equity Valuation Using Accounting Numbers, Lecture Notes, Lancaster University Management School.
13. Claus, J. and J. Thomas, 2001, Equity Premia as Low as Three Percent? Evidence from Analysts' Earnings Forecasts for Domestic and International Stock Markets,
The Journal of Finance, 56 (5): 1629-1666.
14. Cooper, I. and K. Nyborg, 2006, Consistent methods of valuing companies by DCF: Methods and assumptions, Working paper, LondonBusinessSchool, NorwegianSchool of Economics and Business Administration.
15. Courteau, L., J.L. Kao, T. O’Keefe and G. Richardson, 2006, Relative accuracy and predictive ability of direct valuation methods, PE method and a hybrid approach, Accounting and Finance, Forthcoming.
16. Damodaran, A., 1999, Research and Development Expenses: Implications for profitability measurement and valuation, New YorkUniversity, SternSchool of business.
17. Dechow, P., 1994, Accounting earnings and cash flows as measures of firms performance: The role of accounting accruals, Journal of Accounting and Economics, 18: 3-42.
18. Demirakos, E., N. Strong and M. Walker, 2004,What valuation models do analysts use? Accounting Horizons, 18(4): 221-240.
19. Dolan Capital Management, 2001, A primer on equity valuation, Retrieved August 14, 2007, from http://www.dolancap.com/research/primer.htm.
20. Fernandez, P., 2002, Valuation using multiples: How do analysts reach their conclusions? Working Paper, IESE Business School, University of Navarra.
21. Foster, G., 1986,Financial statement analysis,New York: Prentice-Hall.
22. Francis, J., P. Olsson and D. Oswald, 2000, Comparing the accuracy and explainability of dividend, free cash flow and abnormal earnings equity value estimates,Journal of Accounting Research, 38(1): 45-70.
23. Frankel, R. and C. Lee, 1998, Accounting valuation, market expectation and cross-sectional stock returns,Journal of Accounting and Economics, 25: 283-319.
24. Gleason, C., W. Johnson and H. Li, 2006, The earnings forecast accuracy, valuation model use, and price target performance of sell-side equity analysts, Working paper, TippieCollege of Business, University of Iowa.
25. Guo, R-J, B. Lev and N. Zhou, 2005, The valuation of biotech IPOs. Journal of Accounting, Auditing and Finance, 20(4): 423-459.
26. Kenton, K. Yee., 2004, Forward versus trailing earnings in equity valuation, ColumbiaBusinessSchool, Review of Accounting Studies 9 (Conferene Issue), 301-329.
27. Kim, M. and J. Ritter, 1999, Valuing IPOs, Journal of Financial Economics, 53: 409-437.
28. Lee, C., 1999, Accounting-based valuation: Impact on business practices and research, Accounting Horizons, 13: 413-425.
29. Lee, C., J. Myers and B. Swaminathan, 1999,What is the intrinsic value of the Dow? Journal of Finance, 54(5): 1693-1741.
30. Lev, B., 1983, Some economic determinants of time-series properties of earnings
Journal of Accounting and Economics, 5: 31-48.
31. Lev, B., 1989,On the usefulness of earnings and earnings research: Lessons anddirections from two decades of empirical research, Journal of Accounting Research, Supplement, 27: 153-192.
32. Lie, E. and H. Lie, 2002, Multiples used to estimate corporate value,Financial Analysts Journal, March/April: 44-54.
33. Liu, J., D. Nissim and J. Thomas, 2002, Equity valuation using multiples.Journal of Accounting Research, 40: 135-171.
34. Liu, J., D. Nissim and J. Thomas, 2003, Price multiples based on forecasts and reported values of earnings, dividends, sales and cash flows: International evidence, Working paper, University of California at Los Angeles.
35. Lundholm, R. and T. O’Keefe, 2001, Reconciling value estimates from the discountedcash flow model and the residual income model,Contemporary Accounting Research, 18(2): 311-335.
36. Lundholm, R. and T. O’Keefe, 2001,On comparing residual income and discounted cashflow models of equity valuations: A response to Penman (CAR, Winter 2001), Contemporary Accounting Research, 18(4): 692-712.
37. O'Hanlon, J., 2007, Financial Statement Analysis, Lecture Notes, Lancaster University Management School.
38. Ohlson, J.A., 2005. On accounting-based valuation formulae,Review of Accounting Studies, 10: 323-347.
39. Ohlson, J.A. and B. Juettner-Nauroth, 2005, Expected EPS and EPS growth as determinants of value,Review of Accounting Studies, 10: 349-365.
40. Palepu, K., P. Healy and V. Bernard, 2004,Business analysis and valuation using financial statements; Texts and cases, 3rd Edition, South-Western College Publishing.
41. Penman, S., 2001, On comparing cash flow and accrual accounting models for use inequity valuation: A response to Lundholm and O’Keefe (CAR, Summer 2001), Contemporary Accounting Research, 18(4): 681-689.
42. Penman, S., 2007,Financial statement analysis and security valuation, 3rd edition,New York: McGraw-Hill.
43. Penman, S. and T. Sougiannis, 1997,The dividend displacement property and thesubstitution of anticipated earnings for dividends in equity valuation,Accounting Review, 72 (January): 1-21.
44. Penman, S. and T. Sougiannis, 1998, A comparison of dividend, cash flow and earnings approaches to equity valuation,Contemporary Accounting Research, 15 (3): 343-83.
45. Revsine, L., D. Collins and B. Johnson, 2005, Financial Reporting & Analysis, 3rd edition, Prentice Hall.
46. Richardson, G. and S. Tinaikar, 2004, Accounting based valuation models: What havewelearned? Accounting and Finance, 44: 223-255.
47. Sougiannis, T. and T. Yaekura, 2001,The accuracy and bias of equity values inferredfrom analysts’ earnings forecasts. Journal of Accounting, Auditing and Finance, 16(4): 331-362.
48. Sum of parts valuation, Retrieved August 09, 2007, from http://moneyterms.co.uk/sum-of-parts/.
49. Tasker, S., 1998, Industry preferred multiples in acquisition valuation, Working paper, University of California at Berkeley.
50. Trueman, B., M. Wong and X. Zhang, 2000, The Eyeballs Have It: Searching for theValue in Internet Stocks,Journal of Accounting Research, 38(Supplement): 137-62.
51. Yoo, Yong. K., 2005, An empirical assessment of the Valuation Accuracy of the Abnormal Earnings Growth Valuation Model, Working Paper, Korea University, Singapore Management University, 1-32.

*Contents are provided by Authors of articles. Please contact us if you having any query.






Bank Details