Work

The Valuation of Cash Flow Forecasts: An Empirical Analysis

Year: 1995

Type: article

Abstract: ABSTRACT This article compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. For our sample of 51 HLTs completed between 1983 and 1989, the valuations of discounted cash flow forecasts are within 10 percent, on average, of the market values of the completed transactions. Our valuations perform at least as well as valuation methods using comparable companies and transactions. We also invert our analysis by estimating the risk premia implied by transaction values and forecast cash flows, and relating those risk premia to firm and industry betas, firm size, and firm book‐to‐market ratios.

Source: The Journal of Finance

DOI: 10.1111/j.1540-6261.1995.tb04050.x

Authors: STEVEN N. KAPLAN, RICHARD S. RUBACK

Institutions: National Bureau of Economic Research, Harvard University, Vanderbilt University, University of Chicago

Language: English

Topic: Financial Reporting and Valuation Research

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: bronze

Funder: Harvard Business School

OpenAlex ID: W3124252552

FWCI: 24.9

Cites: 21

Cited by: 512

Related to: 10