What is it about?

The discounted cash flow model (DCFM) views the intrinsic value of common stock as the present value of its expected future cash flows. This paper analyses whether the equity terminal value (EqTV) of the firm calculated by fundamentals is appreciated by the market. It also studies the impact of variations in EqTV and the extent to which the market perceives these variations. Using a sample of 62 Spanish listed companies, this paper shows that EqTV and its variations are positively and significantly correlated with EqTV assigned by the market and its corresponding variations. It therefore corroborates the validity and relevance of the valuation model.

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Why is it important?

Our findings reveal that the Equity terminal value and its variations are positively and significantly correlated with Equity terminal value assigned by the market and its corresponding variations. It therefore corroborates the validity and relevance of the discounted cash flow model.

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This page is a summary of: How the Equity Terminal Value Influences the Value of the Firm?, Journal of Business Valuation and Economic Loss Analysis, December 2017, De Gruyter,
DOI: 10.1515/jbvela-2017-0010.
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