Abstract
This research contrasts residual earnings, discounted cash flow analysis, and adjusted earnings techniques based on accrual earnings when applied to a finite-horizon valuation with market value on initial day of offering. Valuations based on average ex post payoffs over various horizons are compared with (ex ante) market prices to give an indication of the error introduced by each technique in the horizon. Comparisons of these procedures show that residual earnings techniques dominate free cash flow and adjusted income approaches. Further, the relevant accounting features of each technique are identified and the sources of the accounting that makes it less than ideal for finite horizon analysis (and for which it requires a correction) are discovered. The research consist of those non-invested companies in Tehran stock exchange in 60 firms that the information related to their balance sheet, income (consist on comprehensive income statement) and cash flow statements was available from 2000 to 2008 and compare their information in order to find appropriate measures in firm valuation.
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