Search

In this paper, we consider the terminal value problem for pseudo-parabolic equations with Riemann–Liouville fractional derivatives, from a given final value and we investigate the existence (and regularity) of mild solutions.

We demonstrate the existence, uniqueness and Galerkin approximatation of linear ultraparabolic terminal value/infinite-horizon problems on unbounded spatial domains. Furthermore, we provide a probabilistic interpretation of the solution in terms of the expectation of an associated ultradiffusion process.

Currently, several large life insurance companies apply the replicating portfolio technique for valuation and risk management of their liabilities. In [7], the two most common approaches, cash-flow matching and terminal value matching, have been investigated from a theoretical perspective and it has been shown that optimal terminal value replicating portfolios are not suitable to replicate liability cash-flows by construction. Thus, their usage for asset liability management is rather restricted, especially for out-of-sample cash profiles of liabilities. In this paper, we therefore enhance the terminal value approach by an additional linear regression of the corresponding optimal dynamic numeraire strategy to overcome this drawback. We show that terminal value matching together with an approximated dynamic strategy has in-sample and out-of-sample performance very close to the optimal cash-flow matching portfolio and, due to computational advantages, can thus be used as an alternative for cash-flow matching, especially in risk and asset liability management.

Namen tega diplomskega dela je predstavitev različnih načinov vrednotenja startup podjetij in problemov, s katerimi se pri tem srečujemo. Takšna podjetja potrebujejo oceno, da lahko pridobijo investitorje, vendar jih je težko oceniti zaradi pomanjkanja podatkov, s katerimi bi si lahko pomagali. Lahko jih ocenimo po klasičnih metodah, vendar lahko te ne dajo prave vrednosti. To se zgodi zaradi visokega tveganja, ki ga je potrebno vključiti v oceno preko posameznih parametrov. Startup podjetja so dandanes v porastu, vendar jih večina ne preživi oziroma ne uspe, zato je tveganje propada visoko. Potem pa so tu še ostali dejavniki, ki otežujejo vrednotenje, kot so: napoved denarnih tokov na podlagi nič oziroma zelo malo preteklih podatkov poslovanja in določitev stroška kapitala. Alternativni pristop ocenjevanja zagonskih podjetij je ocenjevanje s pomočjo realnih opcij. Ključna prednost tega modela je, da vključuje vodstveno prilagodljivost in pomaga izbrati najboljše odločitve. Seveda ima tudi ta metoda nekaj pomanjkljivosti, recimo zapletene matematične strukture, model je preveč teoretičen, težko določimo vrednost osnovnega instrumenta in čas konca investicijske priložnosti. V nalogi je predstavljeno tudi ocenjevanje konkretnega startup podjetja, ki pokaže, da realne opcije res pozitivno vplivajo na vrednost podjetja. The main purpose of this dissertation is to represent different ways of valuing startup companies and all of the problems that arise. Such companies need to know their value so they can attract investors, but that is not easy to do considering lack of information that could help at valuing. They can be evaluated by classical methods, but they don't always give the true value. This happens due to the high risk that needs to be included in the value through individual parameters. Startup companies are on the rise nowdays, but most of them do not survive, so the risk of a company's downfall is high. In addition, there are some other factors that make it difficult to evaluate, such as: forecast of cash flows based on zero or very little historical data and determining the cost of capital. An alternative approach to evaluating startup companies is a real option method. The key advantage is that it involves managerial flexibility and helps to make the best decisions. Of course, this method also has some disadvantages, such as a complex mathematical structure, the model is too theoretical, it is difficult to determine the value of the underlying asset and the time of the end of the investment opportunity. This thesis also presents the evaluation of a concrete startup company, which shows that real options really do have a positive impact on the value of the company.

This study evaluated the value-relevance of accounting information (earnings and cash flows) in Indonesia to predict a firm’s future operating cash flows. The predictive usefulness of earnings and cash flows in association with future cash flows is of interest for three reasons. They include providing empirical evidence on the relevant accounting information to assess a firm’s future cash flows, information about the behavior and properties of Indonesian accounting information, and evidence of – or at least providing a basis for evaluating–the validity of the IndonesianAccounting Standards Committee (KPSAK) assertion on the usefulness of accounting information to assess future cash flows.The study evaluated three cash flow prediction models that employed cash flow, earnings, and a combination of earnings-cash flow variables. The models were applied on a firm-specific data set. The data used in this study were semi-annual data for the 61 sample firms (manufacturing firms)listed in the Jakarta Stock Exchange (JSX) spanning the years 1990-1997. The results of this study supported the proposed hypothesis that cash flow data provided better information to assess a firm’s future cash flows than earnings data. Since this study employed manufacturing firms only, future research is necessary to evaluate the robustness of the results to otherpopulations of firms and/or by using an alternative deflator of earnings and cash flows, such as consumer price index (CPI) or market value of the firms. Further extensions of this study include additional refinements of the prediction models on an industry-specific basis and disaggregating cash flow variables into operating, investing, and financing components in order to measure the value-relevance of the statement of cash flows.

This note is intended to clarify some important points about the well-posedness of terminal value problems for fractional differential equations. It follows the recent publication of a paper by Cong and Tuan in this journal, in which a counter-example calls into question the earlier results in a paper by this note's authors. Here, we show in the light of these new insights, that a wide class of terminal value problems of fractional differential equations is well posed, and we identify those cases where the well-posedness question must be regarded as open.

The well-known techniques of monotone iterative have been investigated and expanded for the causal terminal value problem (CTVP). This method construct the monotone sequences of the solutions of linear CTVPs by using the upper and lower solutions. Moreover, these sequence of functions are uniformly and monotonically converge to the extremal solutions of the CTVP.

We formulate a stochastic differential game in continuous time that represents the unique viscosity solution to a terminal value problem for a parabolic partial differential equation involving the normalized $p(x,t)$-Laplace operator. Our game is formulated in a way that covers the full range $1, Comment: 36 pages

We are interested in occupation times of Lévy processes with jumps rational Laplace transforms. The corresponding boundary value problems via the Feynman-Kac representation are solved to obtain an explicit formula for the joint distribution of the occupation time and the terminal value of the Lévy processes with jumps rational Laplace transforms.

Projects for energy supply based on the exploitation of renewable energy have a very predictable cash flow. The initial costs are usually high, with the acqui-sition of technologically evolving equipment. However, maintenance costs are relatively low and easily predictable. Likewise, operating costs are often very low as there is no need to buy inputs. Power storage devices are often short-lived and contribute to a relative cost increase. At the same time, these projects are often not approved because they are directly compared to projects based on non-renewable resources, with cash flows that may not be so easily predictable and with much lower start-up costs. Fossil fuels have hardly pre-dictable costs, established by non-technical criteria and related to geopolitical issues. In addition, their operating costs are usually very high, precisely be-cause of the need to purchase fossil fuels. This paper proposes the calculation of terminal value in cash flows of power generation projects and its applica-tion for feasibility analysis of projects based on renewable resources. The proposed method suggests the calculation of terminal value as the moving av-erage calculated for five-year intervals with constant growth rate of 5%. This method also encourages the inclusion in the cash flow of annual values that add up to the end of the analysis period the sufficient value to renew the sys-tem components at the end of the usual analysis period of 20 - 25 years. The application of the proposed method to a diesel wind system simulated with the well-known Homer software indicates the modification of the results of the Homer with the preference for systems with greater wind penetration in-stead of the systems with greater consumption of fossil fuels.

This paper establishes the existence of a unique nonnegative continuous viscosity solution to the HJB equation associated with a linear-quadratic stochastic control problem with singular terminal state constraint and possibly unbounded cost coefficients. The existence result is based on a novel comparison principle for semi-continuous viscosity sub- and supersolutions for PDEs with singular terminal value. Continuity of the viscosity solution is enough to carry out the verification argument.

Models based on economic profit divide the value of the company to “base value” and “added value”. Best-known economic profit models are EVA and Residual income (RIM). Based on them a franchise value approach has been developed. The franchise value model makes two main adjustments: First is with the base value. For other models, the base value of the company is some balance sheet figure. Franchise value approach takes into account not the balance sheet, but rather the earning power of the company. Tangible value of the company is introduced and is equal to the present value of current EPS repeated in the future. It is more reasonable to see the base value as a function of the earnings rather some balance sheet figure. The second major innovation is the separation of the growth model from the performance evaluation. While in most valuation models for growth estimation is used GGM that is implemented in the terminal value, here growth separated in “Growth factor”. This creates interesting inter-model dynamics that will be discussed in detail. According to the approach, the firm value consist of two main elements: - Tangible value. It present the ability of the company to create earnings; - Franchise Value. It involves two parts. First, the Franchise factor. It gives information about the relative performance of company against the market expectations. Second, the Growth factor. It should be noted that this is the only model that separates the growth from the performance. There are two approaches to finding the necessary characteristics of the random process, one is to confine g to vary randomly in the borders of E(GDP growth) +/- Inflation). The other is to extract the characteristics from the historical observations. Biggest advantage of Franchise value approach are the required inputs. With the separation of the growth factor, rest of the model needs only current data without burdensome forecasting that usually brings heavy assumptions. This brings the valuation closer to the present state of the business. In our paper we demonstrate the application of the model to a real company - Delta Electronics, Inc.

In [5], the existence of the solution is proved for a scalar linearly growing backward stochastic differential equation (BSDE) if the terminal value is $L\exp \hskip -0.5pt{\left (\mu \sqrt{2\log {(1+L)}} \right )}\hskip -0.5pt$-integrable with the positive parameter $\mu $ being bigger than a critical value $\mu _0$. In this note, we give the uniqueness result for the preceding BSDE.

When valuing firms through discounted cash flow, it is common to estimate the terminal value through the Gordon model. Some authors propose to adapt such model in the presence of inflation and for two particular cases: zero real growth and real growth through zero net present value projects. The discussion to the proposed adjustment (equal growth rate to inflation) is limited to the free cash flow to firm (FCFF) approach and is not unanimity. Our objective is to expand the discussion to the free cash flow to equity (FCFE) approach. Would the proposed adjustment also apply to the FCFE approach? We start corroborating the proposed adjustment for the FCFF approach, in our view. Then we reconcile the adapted model through a numerical example. After that we apply the same proposed adjustment to the FCFE approach. One would incur in error by following strictly the adjustments proposed for the FCFF approach: cash flow equals to income (changing net operating profit less adjusted taxes by earnings) and growth equals to inflation. We show that there is an additional necessary adjustment, either in the growth rate (dividing it by the weight of the equity in total capital) or in the earnings (proxy to the net cash flow). Both additional adjustments deliver the same outcome – which is also equal to the one the model adapted to the FCFF approach would deliver. We believe some practitioners might overlook such adjustments.

We extend the literature on house price cash differentials in important ways. First, our paper is the first to employ methods to correct for sample selection bias, using both switching regression and propensity score matching of cash vs. non-cash transactions. We use selection models to produce price counterfactuals for cash and noncash buyers. We also include both average treatment effect and a propensity score weighted selection models. From the selection models, we find that previous studies likely overstate the cash discount. Results from counterfactual tests examining cash discounts suggest amplified cash discounts in areas with close proximity to an environmental hazard; and also a pricing differential based on CBG level income, with purchasers in high income areas more likely to pay a cash premium compared to market participants in areas with comparably lower income, where a cash discount is detected. These results provide useful insights for market participants including real estate appraisers, brokers, and buyers and sellers of real estate.

On what does growth in value primarily depend? Is it the magnitude of forecast cash flow, the growth in forecast cash flow, discount rates, or some combination? This article answers these questions. Additionally, the author develops a generalized discounted cash flow (GDCF) model, in which the standard discounted cash flow becomes a special case. The GDCF consists of a single formula for valuing a business. Finally, the author provides recommendations for management of the business that will increase growth in value the most.

In this paper, we study the valuation of stochastic cash flows that exhibit dependence on interest rates. We focus on insurance liability cash flows linked to an index, such as a consumer price index or wage index, where changes in the index value can be partially understood in terms of changes in the term structure of interest rates. Insurance liability cash flows that are not explicitly linked to an index may still be valued in our framework by interpreting index returns as so-called claims inflation, i.e., an increase in claims cost per sold insurance contract. We focus primarily on the case when a deep and liquid market for index-linked contracts is absent or when the market price data are unreliable. Firstly, we present an approach for assigning a monetary value to a stochastic cash flow that does not require full knowledge of the joint dynamics of the cash flow and the term structure of interest rates. Secondly, we investigate in detail model selection, estimation and validation in a Heath-Jarrow-Morton framework. Finally, we analyze the effects of model uncertainty on the valuation of the cash flows and how forecasts of cash flows and interest rates translate into model parameters and affect the valuation.

This study examines the contribution of goodwill impairment information to the prediction and forecasting of future operating cash flows. Extending the framework of Barth, Cram, and Nelson, we find that explicitly including goodwill impairments incrementally improves 1-year-ahead cash flow prediction and forecasting. Improved cash flow forecasting is present over the entire 2001-2009 study period as well as for each year within the study window. In addition, goodwill impairments retain their significance and predictive power when other non-recurring charges (e.g., restructuring, asset write-downs, and merger and acquisition costs) are added to the model, both individually and aggregately, and when market-related information (i.e., change in market capitalization) is included in the model. While these findings are validated by in-sample prediction techniques, this study is also one of only a few studies to investigate the incremental, out-of-sample predictive power of non-current accruals on reported (as opposed to computed) operating cash flows. Analysts, investors, creditors, and others interested in future cash flows should separately consider goodwill impairment information, when available, to improve the accuracy of cash flow prediction and forecasting.

Purpose – The main objective of this paper is to compare the ability of US-generally accepted accounting principles (GAAP) operating cash flows versus Iran-GAAP operating cash flows in predicting future cash flows. Design/methodology/approach – The sample comprises 240 firms (1,200 firm-years) during the period from 2004 to 2008 for which operating cash flows and other variables are available. Cross-sectional and panel data regression models are used in testing the hypotheses. Findings – This study finds that operating cash flows based on Iran-GAAP are no more effective in predicting future cash flows than those based on USA-GAAP, and the predictive ability of the model is improved by adding the earnings accrual components to the operating cash flows. Originality/value – The study suggests that the Iranian accounting standard setting committee recommends that the statement of cash flows be prepared based on the three-category model instead of the five-category model in an attempt to converge with the International Financial Reporting Standards. Consistent with Financial Accounting Standards Board and financial analyst recommendations, the results reveal that earnings are a better predictor than cash flows from operations.

Shooting methods are a well established tool for the numerical solution of terminal value problems of fractional order. However, they can be computationally quite expensive because of their iterative nature in which (a) each single iteration may be costly, and (b) the number of iterations can be large. In this paper we propose algorithmic strategies for improving the efficiency of such methods. Our strategies are aimed at simultaneously reducing the cost of each iteration and reducing the number of required iterations.

In today's competitive markets, most firms in United Kingdom and United States offer their products on trade credit to stimulate sales and reduce inventory. Trade credit is calculated based on time value of money on the purchase cost (i.e., discounted cash flow analysis). Recently, many researchers use discounted cash flow analysis only on the purchase cost but not on the revenue (which is significantly larger than the purchase cost) and the other costs. For a sound and rigorous analysis, we should use discounted cash flow analysis on revenue and costs. In addition, expiration date for a deteriorating item (e.g., bread, milk, and meat) is an important factor in consumer's purchase decision. However, little attention has been paid to the effect of expiration date. Hence, in this paper, we establish a supplier–retailer–customer supply chain model in which: (a) the retailer receives an up-stream trade credit from the supplier while grants a down-stream trade credit to customers, (b) the deterioration rate is non-decreasing over time and near 100 percent particularly close to its expiration date, and (c) discounted cash flow analysis is adopted for calculating all relevant factors: revenue and costs. The proposed model is an extension of more than 20 previous papers. We then demonstrate that the retailer's optimal credit period and cycle time not only exist but also are unique. Thus, the search of the optimal solution reduces to a local one. Finally, we run several numerical examples to illustrate the problem and gain managerial insights.

This paper applies models in the extant literature that have been used to forecast operating cash flows to predict the cash flows of South African firms listed on the Johannesburg Stock Exchange. Out-of-sample performance is examined for each model and compared between them. The reported results show that some accrual terms, i.e. depreciation and changes in inventory do not enhance cash flow prediction for the average South African firm in contrast to the reported results of studies in USA and Australia. Inclusion of more explanatory variables does not necessarily improve the models, according to the out-of-sample results. The paper proposes the application of moving average model in panel data, and vector regressive model for multi-period-ahead prediction of cash flows for South Africa firms.

Purpose – The purpose of this paper is to examine how investors’ valuation of cash holdings is related to firm-level investment. Design/methodology/approach – As prior studies note that holding excess cash serve as a driver to would be over-investing, and that over-investment imposes substantial agency costs on shareholders, the authors focus on the value implications of holding cash in the presence of over-investment from the perspective of shareholders. Findings – By examining the publicly traded companies on Taiwan stock market, the authors uncover that cash is valued less in firms with over-investment than in those with under-investment and the magnitude of over-investment is negatively related to the marginal value of cash holdings (MVCH). It reveals that investment activities impact the value that shareholders place on cash holdings. Moreover, further tests indicate that higher block holdings and the presence of independent directors on boards can effectively mitigate the negative impact of over-investment on the MVCH. Practical implications – This paper enhances the understanding of the valuation implications of cash reserves held by firms with over-investment and the effectiveness of governance structures in containing the detrimental effect of investment-related agency costs on the value of holding cash. Originality/value – This paper provides pioneering evidence that outside investors discount cash assets in over-investing firms to reflect their expectations that they will not receive the full benefit of these assets; and this paper extends the literature on corporate governance by assessing the role of governance mechanisms in reversing the negative relation between over-investment and the MVCH.

Purpose – The purpose of this paper is to establish whether a terminal value is a substantial amount of the final figure in a hotel’s valuation. Malta’s scenario has been delved into. This due to the fact that owing to Malta’s high population density and its restrictive land area, land values attract a high premium as compared with larger developed countries. Other matters such as earnings’ multipliers derived from a cap rate (initial yield), CAPEX has also been delved into. Design/methodology/approach – The methodologies adopted in hotel valuation practice has been delved into. An extensive literature review is undertaken to analyse the earnings multiplier adopted by various authors over the past 30-year period. The hotel cap rate (initial yield) has been compared with similar yields adopted in the institutional and property markets and then compares to market-based data. A discussion is undertaken on the validity of adopting discounted cash flow, as against the short cut market appraisal approach. Capitalization rates, cap rates have also been referred to as obtained from the academic and practitioners field and compared. Depreciation and the anticipated annual accommodation charges have been analysed. A database of hotel rooms value over the past 20-year period has been referred. Findings – A table outlines the earnings’ multipliers in perpetuity or for the limited expected design life for various cap rates. This data will act as a guide in guiding practitioners to establish an earnings’ multiplier to be applied in their valuation methodology. An example in the Appendix clarifies the manner in which this data table is to be utilized. The finding of this example notes that for this hotel in Malta, as constructed on private land, the terminal value for this development hovers around the 30 per cent of the market value. Research limitations/implications – This analysis is based on five valuations as undertaken on five hotels in Malta with classification grades varying from III to V. This notes that the terminal value varies within a range of 9-45 per cent of the total value. This analysis has to be undertaken for other countries for a global range of land terminal values percentages to be established. Practical implications – Establishing the terminal value of a hotel business, will offer greater security for secured lending facilities required. It will further act as an important tool to establish the feasibility of a hotel development. Originality/value – Updated insight is given to existing hotel valuation methodologies by delving into the workings of the earnings’ multiplier and establishes that in today’s market the terminal value of the hotel basis has to be accounted for. The above findings are based on a link between theory and practice.

Many researchers have assumed one stage trade credit financing. In this study, we considered two levels of trade credit policy using Discounted Cash Flow (DCF) approach. Demand rate is considered to be stock-dependent for the first level (credit demand) and constant for second level (cash demand). Mathematical models are derived under two different circumstances i.e., case I: The permissible delay period is less than or equal to the cycle time and case II: The permissible delay period is greater than or equal to the cycle time for settling the account. An algorithm is provided to determine the optimal order quantity and annual profit. In addition, numerical examples are presented to demonstrate the solution process. Finally, sensitivity analysis of the optimal solution is discussed with respect to different parameters.

This paper studies the optimization problem of DC pension plan under mean–variance criterion. The financial market consists of cash, bond and stock. Similar to Guan and Liang (2014), we assume that the instantaneous interest rate is an affine process including the Cox–Ingersoll–Ross (CIR) model and Vasicek model. However, we assume that the expected return of the stock follows a completely different mean-reverting process, which can well display the bear and bull features of the market, and the market price of the stock index is the Ornstein–Uhlenbeck process. The pension manager thus has to undertake the risks of interest rate and market price of stock index. Besides, a special stochastic contribution rate is formulated. The goal of the pension manager is to maximize the expected terminal value and minimize the variance of terminal value. We will use the technique developed by Guan and Liang (2014) to tackle this problem and derive the closed-forms of efficient frontier and strategies. Numerical analysis is given in the end of this paper to show the economic behavior of the efficient frontier and strategies.

The rise of environmental awareness has changed consumer demands and values. One of the greatest challenges for green marketing of a restaurant presents in the introduction of green positioning to consumer decision-making. This study uses a means-end chain to investigate consumer awareness, decision-making processes, and consumer values with regard to restaurant attributes. The results of the study show that consumers value the following green attributes in restaurants: taste, using recyclable or biodegradable products, local ingredients, energy conservation, and carbon reduction. In terms of result benefits, consumers value feelings of health benefits, environmental protection, increased consumption frequency, happy mood, and an ability to help the environment. In value terms, consumers hope that their choice of restaurant can improve their relationships with others and lead to a happier life. The findings show that consumers with different awarenesses of the green attributes of restaurants have different decision-making processes. However, they share the same terminal value of a “happier life.” For restaurants, this provides the opportunity for green brand positioning. Restaurant operators can use decoration, menu choices, and services to attract their target customers.

We develop an option pricing model based on a tug-of-war game involving the the issuer and holder of the option. This two-player zero-sum stochastic differential game is formulated in a multi-dimensional financial market and the agents try, respectively, to manipulate/control the drift and the volatility of the asset processes in order to minimize and maximize the expected discounted pay-off defined at the terminal date $T$. We prove that the game has a value and that the value function is the unique viscosity solution to a terminal value problem for a partial differential equation involving the non-linear and completely degenerate parabolic infinity Laplace operator.

We consider an optimal investment problem with intermediate consumption and random endowment, in an incomplete semimartingale model of the financial market. We establish the key assertions of the utility maximization theory, assuming that both primal and dual value functions are finite in the interiors of their domains and that the random endowment at maturity can be dominated by the terminal value of a self-financing wealth process. In order to facilitate the verification of these conditions, we present alternative, but equivalent conditions, under which the conclusions of the theory hold.

Accurate cash flow forecasting is essential for successful management of firms and it becomes especially critical during uncertain market and credit conditions. Without accurate cash flow forecasting, a firm may fail to meet its short-term obligations and risk bankruptcy. Accurate cash flow forecasting can be limited by a number of factors including changes in macro-economic conditions that influence liquidity in the economy, customer payment behavior that can vary from time to time as well by industry, and dynamics of the particular supply chain itself. We develop stochastic financial analytics for cash flow forecasting for firms by integrating two models: (1) Markov chain model of the aggregate payment behavior across all customers of the firm using accounts receivable aging and; (2) Bayesian model of individual customer payment behavior at the individual invoice level. As the stochastic dynamics of cash flow evolves every day, the forecast can be updated every time an invoice is paid. The proposed model is back-tested using empirical data from a small manufacturing firm and found to differ 3–6% from actual monthly cash flow, and differs approximately 2–4% compared to actual annual cash flow. The forecast accuracy of the proposed stochastic financial analytics model is found to be considerably superior to other techniques commonly used. Furthermore, in computer simulation experiments, the proposed model is found to be largely robust to supply chain dynamics, including when subjected to severe bullwhip effect. The proposed model has been implemented in Excel, which allows it to be easily integrated with the accounts receivable aging data, making it practicable for small and large firms.

The valuation of companies or their assets is at the heart of most financing and investment decisions. Over the last five decades, academics have developed several simple and sophisticated models for corporate valuation. Yet valuation estimates of a firm or its assets appear to vary widely among practitioners. It is unclear whether these differences arise from practitioners' use of different valuation models or from differences in their assumptions about the inputs used in those models. To provide some insights into this issue, the authors recently surveyed 365 European finance practitioners with CFAs or equivalent professional degrees. They find that almost all survey respondents use the Discounted Cash Flow (DCF) model (along with some version of Relative Valuation that relies on the use of “comparables”). But the estimation methods of such practitioners for almost all inputs in the DCF model, including beta, the equity market risk premium, leverage, cost of debt, and terminal value, vary widely. This can be a serious problem because even small differences in inputs can cause huge variations in valuations. Such differences arise primarily because theory provides little guidance on how to estimate parameters, leaving practitioners to make their own assumptions and judgments. In sum, the authors' findings suggest that the process of estimating valuation parameters can be as important as the choice of the valuation model itself, and requires the serious attention of academics and practitioners. The authors recommend that key valuation parameter estimates be disclosed in financial and valuation reports. Their findings are also relevant to policy makers because the concept of “fair value” plays such a central role in post-crisis regulation.

Purpose The purpose of this paper is to investigate the incremental information content of estimates of cash flow components in predicting future cash flows. Design/methodology/approach The authors examine whether the models incorporating components of operating cash flow from income statements and balance sheets using the direct method are associated with smaller prediction errors than the models incorporating core and non-core cash flow. Findings Using data from US and UK firms and multiple regression analysis, the authors find that around 60 per cent of a current year’s cash flow will persist into the next period’s cash flows, and that income statement and balance sheet variables persist similarly. The explanatory power and predictive ability of disaggregated cash flow models are superior to that of an aggregated model, and further disaggregating previously applied core and non-core cash flows provides incremental information about income statement and balance sheet items that enhances prediction of future cash flows. Disaggregated models and their components produce lower out-of-sample prediction errors than an aggregated model. Research limitations/implications This study improves our appreciation of the behaviour of cash flow components and confirms the need for detailed cash flow information in accordance with the articulation of financial statements. Practical implications The findings are relevant to investors and analysts in predicting future cash flows and to regulators with respect to disclosure requirements and recommendations. Social implications The findings are also relevant to financial statement users interested in better predicting a firm’s future cash flows and thereby, its firm’s value. Originality/value This paper contributes to the existing literature by further disaggregating cash flow items into their underlying items from income statements and balance sheets.

This work presents a new model of the fractional Black-Scholes equation by using the right fractional derivatives to model the terminal value problem. Through nondimensionalization and variable replacements, we convert the terminal value problem into an initial value problem for a fractional convection diffusion equation. Then the problem is solved by using the Fourier-Laplace transform. The fundamental solutions of the derived initial value problem are given and simulated and display a slow anomalous diffusion in the fractional case.

We establish the existence and uniqueness of solutions to one dimensional BSDEs with generator allowing a logarithmic growth () in the state variables y and z. This is done with an integrable terminal value, for some . As byproduct, we obtain the existence of viscosity solutions to PDEs with logarithmic nonlinearities.

Offshore wind power plants might be seen as high risk investments. Their risk depends on technical and financial elements. When some corporations decide to invest in a plant, they decide to take all above-mentioned risks. The question 'Given a specific investor, a specific plant, etc., how big are the investment risks?' has not a clear answer. In fact, the impact of the previous risk factors on cash flows is not completely quantified, mainly because all the risks are related, but the dependency structure is difficult to be modelled. Hence, it is important to have a measure of the impact of the risks into the cash flows. Due to the lack of knowledge in this quantification, we have decided to investigate it more in the detail. The paper aims to measure the variability of cash flows and how effective are the strategies for locking electricity prices, ship freight rates, or both in the reduction of this variability. We adopt the Monte Carlo approach for simulating all the possible cash flows and for measuring all the uncertainties. The output shows that seasonal and uncertain cash flows. The strategies, for reducing the probability of negative cash flows, work only with locked electricity prices.

This paper is concerned with a linear quadratic (LQ, for short) optimal control problem with fixed terminal states and integral quadratic constraints. A Riccati equation with infinite terminal value is introduced, which is uniquely solvable and whose solution can be approximated by the solution for a suitable unconstrained LQ problem with penalized terminal state. Using results from duality theory, the optimal control is explicitly derived by solving the Riccati equation together with an optimal parameter selection problem. It turns out that the optimal control is not only a feedback of the current state, but also a feedback of the target (terminal state). Some examples are presented to illustrate the theory developed., 19 pages

This study aims to estimate the fair value per share of PT BW Plantation Tbk after the company offered right issue. This study is also intended to find out the fair market value per share of PT BW Plantation Tbk post-rights issue. The information used in this study was obtained from secondary data from the financial statements of PT BW Plantation Tbk., which were audited by public accountants and other information available in the financial statements. BW Plantation Tbk., The company's financial statements comparison, and the company's stock price data comparison. The methods of analysis used in determining the fair value per share is the Discounted Cash Flow and Relative Valuation. Discounted Cash Flow analysis was done by: projections of financial statements i.e. balance sheet and income statement, the projected Free Cash Flow to Equity (FCFE), the determination of the discount rate, the determination of Terminal Value, and the estimated fair value of equity. Analysis of Relative Valuation begins with finding the comparison companies in the same business line, select and assign the appropriate multiple of the comparison companies. Multiple used are: Price Earnings Ratio (PER), Price to Book Value (PBV), and Price to Sales Ratio (P / S).Keywords: valuation of shares, rights issue, discounted cash flow, relative valuation

In this paper we discuss practices for fair value estimation of banking book items. While fair value principles are not new they have gained in importance recently with new accounting regulations (e.g., IFRS 9) and banks are also considering market best practices to disclose banking book valuations focusing on market implied views rather than potentially biased internal views. A core part of the fair value estimation is the extraction of the risk-neutral market implied view on risk spreads using either directly observable or approximate market spreads. Such extraction can be based on the available credit markets and one can either extract a spread or premia directly from the market or start with a real-world model of credit risk as the basis and add a market induced risk premia. In the latter case there is the benefit of relating real-world expected loss models to risk-neutral. Regardless of approach - using the actual spread or risk premium extracted from the market in discounting of cash flows is of course central in fair value and the foundation of the market valuation principle. As for the bulk of the banking book items there are no active quote markets the fair value estimation often uses the discounted cash flow principle similar to bonds. Loans may however have rating or credit state dependent cash flow features that require a valuation using a state transition matrix setting. Similarly, loans may be exposed to statistical prepayment models that require adjustments to simple bond valuation schemes. In our valuation scheme we strip the cash flows of financial engineering valued embedded options and value such embedded optionality separately. This definition of the valuation cash flows is consistent with the new regulation for interest rate risk in the banking book which is an advantage as such banking book cash flows should already be available in banks.

In most corporate valuations the continuing, or terminal, value accounts for a majority of the total estimated value, but it is rarely given the attention it deserves. An exception is the work of Bradley and Jarrell (2008), who examine the impact of inflation on the constant growth model most commonly used to estimate the terminal value. They claim that standard constant growth models error by not properly accounting for inflation. Here we extend the work of Bradley and Jarrell and reconcile it with the traditional models. Our conclusion is that standard models work, but only if the terms are defined and applied consistently. It turns out that those consistent definitions are complicated by the interaction of inflation with accounting conventions. In particular, it is necessary to distinguish depreciable assets from non-depreciable assets and to contrast both with unrecorded intangible assets.

Valuation based on DCF (Discounted Cash Flow) has been the dominant valuation procedure during the last decades. In spite of this dominance, enterprise valuation using the discounted FCF (Free Cash Flow) model has some practical drawbacks, since there is often some confusion on how to effectively use it. Commonly, the valuation procedures start by estimating future FCF figures from historical data, such as mean FCF, growth and retention ratio, alongside many other variables. These FCF forecasts are discounted at the cost of equity (FCFE – FCF to Equity) or the Weighted Average Cost of Capital WACC (FCFF – FCF to Firm). Implicit in the above mentioned valuation procedures is the expectation that the company puts the retained free cash that is generating to good use, yielding a value capable of rewarding appropriately the level of risk inherent in the way it used. Some poorly performed valuation studies however tend to double count (Damodaran, 2006a) the retained cash’s interest in subsequent values of FCF, or include the accumulated cash build-up in the Terminal Value. This paper discusses how these two common double-counting mistakes are made and evaluates their weight in the final valuation figure for the particular case of retained FCFE (the case for the FCFF is analogous, but we focus on FCFE for simplicity) using projected figures. info:eu-repo/semantics/publishedVersion

This paper generalizes the canonical information structure introduced in Kyle (1985) to allow for the arrival of sequential information events that permanently affect the value of a single risky asset. Risk-averse, competitive, informed traders know the mean of the terminal value of the asset — which is time-varying as a result of the arrival of zero-mean information shocks — but the actual terminal value is unknowable in advance in our setting. The models of Subrahmanyam (1991) and Holden and Subrahmanyam (1992, 1994), which add risk aversion and multiple informed traders to Kyle (1985), emerge as special cases in which the sequential and terminal information channels are turned off. Informed traders who are risk averse trade more patiently, and prices converge more slowly to their efficient levels, in the presence of information flow.

A q-theoretic model highlights the interaction of cash and valuations in determining expected returns. Variation in cash helps identify variation in valuations, with higher cash commanding higher valuation. Controlling for valuations, higher cash commands higher expected return. The data confirm these predictions. Cash strategies are growth strategies that earn positive and significant returns when controlling for book-to-market. Controlling for cash increases the power of book-to-market predicting the cross section of returns, improves the performance of value strategies, implies a non-redundant role for value alongside profitability and investment factors, and helps explain anomalous return premia.

The International Integrated Reporting Council's Framework identifies two goals for integrated reporting: improved information for outside providers of financial capital and better internal decision making. We extend prior research that finds a positive association between integrated report quality (IRQ) and firm value by examining two channels through which this association may arise—a capital market channel and a real effects channel. To conduct these tests, we disaggregate firm value into three components: liquidity, cost of capital, and expected future cash flows. Using data from South Africa where integrated reporting is mandatory and an IRQ measure based on proprietary EY data, we find a positive association between IRQ and liquidity, which supports the capital market channel. We find no evidence of a relation between IRQ and cost of capital. We also find a positive association between IRQ and expected future cash flows. Because this association could reflect better investor cash flow forecasts—a capital market effect, better internal decisions—a real effect, or both, we attempt to distinguish these explanations. We find higher IRQ is (not) associated with higher realized future operating cash flows (greater analyst target price forecast accuracy), and find higher IRQ is associated with higher investment efficiency. These findings support the real effects channel. Together, our findings are consistent with integrated reporting achieving its dual objective of improved external information and better internal decisions.

Ohlson and Aier (2009) propose a model of modified cash accounting (MCA) for analyzing and evaluating a firm’s cash flows. They suggest that MCA cash earnings provide a better measure of earnings than GAAP’s measure, and that the MCA bottom line is more informative because it identifies earnings due to operations on a cash- and approximate cash-equivalent basis. However, there is no empirical test for the information content of MCA cash earnings proposed by Ohlson and Aier (2009). This study empirically examines the incremental information content of MCA cash earnings compared with cash flow from operations (CFO) and GAAP earnings per share (EPS) using stock returns as the benchmark for firms’ performance during the 2001–2011 period. We find that MCA cash earnings provide incremental information content beyond CFO and EPS.

Corporate valuation often relies on the assumption of a constant and homogenous growth rate. However, large firms frequently (re)balance their activities by diverting cash flows from some business units to fund investments in other units. We develop a value driver model of terminal value for a firm with two units. The model relaxes common assumptions and allows for cross-unit differences in the return on invested capital. We consider intra-unit and cross-unit investments and show their implications for firm value and the long-term development of key accounting variables. Our results help characterize business unit strategies that can be reconciled with popular firm strategies such as the constant payout and constant growth strategies. We find that popular valuation methods that assume both constant payout ratios and constant growth rates (e.g., Gordon and Shapiro 1956) constitute a restrictive special case of our model and should only be applied to firms with homogenous business units. We use a simulation analysis to compare our results with alternative valuation models and to illustrate the economic relevance of our findings. The simulation shows that an accurate depiction of business unit strategy is particularly useful if firms plan large-scale cross-unit investments into business units with high returns and if the cost of capital is low.

I show that managers of small businesses extrapolate from past growth when making corporate investment decisions, even when past growth is uninformative about future growth. This extrapolation leads to a higher rate of firms shutting down in subsequent years. My identification strategy uses rainfall as an instrumental variable for cash flow shocks to firms that are weather sensitive. I find that companies increase investment 43% relative to mean yearly investment following a onestandard-deviation drop in summer rainfall, even though the drop is transitory. Traditional explanations, such as loosening of credit constraints or agency problems, do not fully explain the result.

The cash management deals with problem of automating and managing cash-flow processes. Optimization of the management processes greatly reduces overall cash handling costs. The present analysis is an empirical study of cash flows, from and to bank branches, deriving an underlying theoretical framework, which can in a reasonable way be connected with the optimal strategy. Functional data analysis is considered an appropriate framework to analyze the dynamics of the time series behavior of cash flows: since the observations are not equally spaced in time and their number is different for each series, they are converted into a collection of random curves in a space spanned by finite dimensional functional bases. A central issue in the analysis is describing specific patterns of the curves, taking into account the temporal dependence, and the dependence between curves. The analysis provides a dynamic cash management model that is applied with alternative strategies for programming a cash in transit for the difference between cash inflows and cash outflows in a fixed interval of time. As the strategies are affected by changes in the behavior of the cash flows, the dynamic model outperforms more traditional approaches in identifying the optimal strategy.