Traditional Valuation Models Research Articles

Valuation analysis of China national petroleum corporation

Oil is considered the lifeblood of several countries due to the political need to offer energy security. Moreover, world economies depend on the state’s supervision and control of oil prices. Thus, the relevant policies of oil companies are carefully formulated in conjunction with government policymakers. Hence, the valuation of oil enterprises is of great significance to global security and economic development. As traditional valuation models tend to underestimate petroleum enterprises, this study adopts the economic value added (EVA) model and incorporates environmental, social, and governance (ESG) indicators to ascertain a new absolute valuation indicator for China National Petroleum Corporationbased on the weighted average adjusted enterprise value, providing a new evaluation indicator for the petrochemical industry.

Predicting the Startup Valuation: A deep learning approach

ABSTRACT The investment and funding decisions of a new venture are based on the startup valuation, which remains an inconclusive and disputable subject matter. For this purpose, well-established strategic management theories such as resource-based view (RBV), industrial structure effect, and network-based theory have been leveraged as inputs. This study uses 757 Indian startup deals dataset during the period from January 2012 to December 2019 to develop a predictive model based on the Artificial Neural Network (ANN) technique, which is a deep learning approach to predict the startup valuation. The ANN-based model predicts the startup pre-money valuation, and we also compares the ANN model to a linear classifier, linear regression, in this study. The result shows that the application of the ANN model can be used as a supplementary method to predict the pre-money valuation, if not an alternative to the traditional valuation models depending on its adaptability and accuracy. This model provides a competitive advantage by building a strong foundation during the negotiation between VCs and entrepreneurs. This study provides managerial and theoretical implications to VCs, entrepreneurs, and policy-makers for upgrading the startup ecosystem.

DOES MACHINE LEARNING PREDICTION DAMPEN THE INFORMATION ASYMMETRY FOR NON-LOCAL INVESTORS?

In this study, we examine the prediction accuracy of machine learning methods to estimate commercial real estate transaction prices. Using machine learning methods, including Random Forest (RF), Gradient Boosting Machine (GBM), Support Vector Machine (SVM), and Deep Neural Networks (DNN), we estimate the commercial real estate transaction price by comparing relative prediction accuracy. Data consist of 19,640 transaction-based office properties provided by Costar corresponding to the 2004–2017 period for 10 major U.S. CMSA (Consolidated Metropolitan Statistical Area). We conduct each machine learning method and compare the performance to identify a critical determinant model for each office market. Furthermore, we depict a partial dependence plot (PD) to verify the impact of research variables on predicted commercial office property value. In general, we expect that results from machine learning will provide a set of critical determinants to commercial office price with more predictive power overcoming the limitation of the traditional valuation model. The result for 10 CMSA will provide critical implications for the out-of-state investors to understand regional commercial real estate market.

The Spatial neural network model with disruptive technology for property appraisal in real estate industry

Property valuation is a complex issue that has always been the focal point for the real estate industry. The traditional valuation models used for appraisals cannot meet real-world demand anymore due to the improper processing of correlated information of nearby facilities. In this study, we propose a Spatial Neural Network (SNN) model, called Property Appraisal 4.0, that uses disruptive technology to forecast property values and discover hidden neighbourhood features of real estate information in the satellite embedding vectors. The latest deep learning technologies are also employed, such as knowledge distillation, incremental learning, and Deep-Automated Optical Inspection. Class Activation Mapping is also adapted to reinforce the proposed spatial neural network in the model. Experimental results show that our approach's performance is better than that of previous mainstream models, such as the Hedonic Pricing Model and Support Vector Machines.

Spotlight on Biotechnology: From a Technological Breakthrough to Valuation Challenges. A Case Study on Crispr Therapeutics and Crispr/Cas 9 Revolution.

High volatility, no predictable cash flows and technological uncertainties make BiotechHealthcare companies’ valuation a challenging task for analysts and investors. Translating clinical promises into economic value represents a rough obstacle to be attractive business, especially in measuring the potential implications that scientific breakthroughs can bring to society and the size of the financial markets’ reaction to such events. The aim of this work is to provide a deeper understanding of dynamics behind biotech companies analysis, moving from traditional valuation models to a risk-adjusted framework, including the technological and regulatory issues approval process. We provide a full immersion in a biological and clinical context that is far and beyond the common practice proper of the financial valuation field. We focus on one of the potential technological disruptors within the clinical and healthcare framework: the CRISPR/Cas 9 system. These revolutionary “molecular scissors” are capable of editing genes by cutting out/repairing disease-causing DNA segment and inserting corrected ones, representing a potential “one-shot” cure for many diseases currently unmet by existing treatments. The potential of CRISPR/Cas9 companies inevitably pours over the financial markets and, in this work, we focus our analysis on CRISPR Therapeutics, the most advanced in clinical trials and the most complete in terms of pipeline products. This represents the perfect example of no-revenues company with an incredible technology breakthrough that could become a profitable investment opportunity. The analysis conducted has been the object of a University of Pavia master’s degree thesis. The following slides are related to the final dissertation held in June 2020 and can be considered as an anticipation of a research paper soon to be published.

Spotlight on Biotechnology: valuation challenges of early-stage companies. A case study on CRISPR Therapeutics AG and Allakos, Inc.

High volatility, no predictable cash flows and technological uncertainties make Biotech-Healthcare companies’ valuation a challenging task for analysts and investors. Translating clinical promises into economic value represents a rough obstacle of this attractive business, especially in measuring the potential implications that scientific breakthroughs can bring to society and the size of the financial markets’ reaction to such events. The aim of this work is to provide a deeper understanding of the dynamics behind Biotech companies’ analysis, moving from the traditional valuation models to a risk-adjusted framework, including the technological and regulatory issues related to FDA (Food and Drug Administration) and EMA (European Medicine Agency) approval process. The efforts made have required a full immersion in a biological and clinical context that is far and beyond the common practice proper of the financial valuation field.

A Journey Into the Biotechnology Industry: Valuation of Early-Stage Companies. Allakos’ Case Study and the Monoclonal Antibody Therapy

High volatility, no predictable cash flows and technological uncertainties make BiotechHealthcare companies’ valuation a challenging task for analysts and investors. Translating clinical promises into economic value represents a rough obstacle of this attractive business, especially in measuring the potential implications that scientific breakthroughs can bring to society and the size of the financial markets’ reaction to such events. The aim of this work is to provide a deeper understanding of dynamics behind biotech companies analysis, moving from traditional valuation models to a risk-adjusted framework, including the technological and regulatory issues related to approval process. The efforts made have required a full immersion in a biological and clinical context. Our work was focused on Allakos, Inc., a clinical-stage biotechnology company developing therapeutic monoclonal antibody for the treatment of various mast cells and eosinophilic related disease. Allakos lead drug candidate is antolimab (AK002), an investigational humanized monoclonal antibody that targets an inhibitory receptor selectively expressed on the surface of immune effector cells, mast cells and eosinophils. The analysis conducted has been the object of a University of Pavia master’s degree thesis. The following slides are related to the final dissertation held in June 2020 and can be considered as an anticipation of a research paper soon to be published.

Valuation of hotel property: issues and challenges

Purpose The purpose of this paper is to provide a practitioners’ perspective on the valuation models used for valuing hotel property and the challenges posed by traditional valuation models in their application and use. Set in the context of the Indian hospitality industry, the paper brings out the paradigm shifts that have taken place in recent years in the context of valuations. The paper also attempts to provide resolution to the issues and challenges raised. Design/methodology/approach This study assimilates data from senior finance professionals and by using semi-structured interviews, draws on a wide spectrum of hotels in India. Findings The findings suggest that the earnings-based models are largely followed in valuing hotel property in India. The major challenges encountered in the valuation process as highlighted by the respondents are related to (a) the growing uncertainty associated with projections of future earnings given the plethora of assumptions made at a micro and macro level, and (b) determination of an appropriate discounting factor for computing the present value of future cash flows. Research limitations/implications This paper generates useful qualitative information on existing practices in valuation in the Indian hospitality sector. The findings will be useful for hoteliers, policymakers and researchers in bringing forth the valuation challenges faced in the context of a developing economy and its characteristic institutional weaknesses. The findings of this paper may be furthered through appropriate and detailed quantitative analysis of primary and secondary data on the issues and challenges raised here. Originality/value This paper makes a sincere attempt to highlight the real challenges faced in valuing hotel properties and as such adds value to the existing literature.

What is the value of Facebook? Evidence from the Schwartz/Moon model

Purpose On May 17, 2012, the social networking company Facebook Inc. fixes its initial public offering (IPO) price at $38.00 a share. Over the next couple of months, contrary to expectations raised by previous IPOs, the stock price crashes more than 50 per cent. Immediately, the question arises whether the issuer’s or the stock market’s pricing of the share are in line with the firm’s fundamentals. Thus, the purpose of this paper is to determine the company value in close proximity to the date of IPO. Design/methodology/approach As Facebook is an archetypal internet growth company, it is evaluated using the Schwartz/Moon model. This approach features significant advantages over traditional valuation models and more adequately captures the characteristics of growth companies. Findings As of September 30, 2012, the fundamental share value determined was $26.53, which exceeded the market price per share of $22.66 by 22.48 per cent, but was far less than the IPO stock price. The subsequent sensitivity analysis reveals the robustness of the result to key input parameters. Originality/value The results raise doubts about the IPO price of Facebook. Furthermore, this paper is of value from a more conceptual perspective in that an extended version of the Schwartz/Moon model is provided. Beyond extensions previously discussed in the subject-based literature, the authors include stochastic interest rates (as an additional source of uncertainty) and investigate their valuation effects.

Uloga analize bilansa u procesima vrednovanja preduzeća modelom P/E multiplikatora

Participants in investment activities are challenged because they have to make decisions in a dynamic environment, which means that the decisions about the price of the transaction, the amount of investment, the intrinsic value of acquired or sold company, risks taken, must be made in the short term. All these decisions stem from processes that rely on prices that are valid on the market, on the one hand, and valuation models, which aim to determine the intrinsic value of the enterprise, on the other. The analysis of financial statements is an integral part of all traditional valuation models, while its role in the application of multiplier market models is not significant. The aim of the paper is to examine the role and the contribution of the traditional financial analysis in the processes of valuation of enterprises with P/E multiplier.

Revising Equity Valuation with Tail Risk

When VIX—a market index of volatility—increases, a firm’s response is to defer growth of investment. Simultaneously, the expected time to ruin, E ( T ), shortens, causing the firm’s value to decline more than commonly used valuation models suggest. The authors derive the characteristics of E ( T ) and revise valuation models that assume cash flows are growing perpetuities. They find that “value trap,” high-growth stocks, and “irrational exuberance” can be explained by incorporating E ( T ) into the traditional valuation models. Their empirical results show that the sensitivities of the 49 industry portfolios to the change in VIX are all significantly negative and undiversifiable and could be proxies for E ( T ).

Evaluación mediante opciones reales de proyectos de inversión en el sector de distribución de combustibles

This paper aims to determine the appropiate evaluation of a Colombian liquid fuel distribution project using the real option evaluation methodology, through a multi-option approach. Thus, each real option generated by the proposed project under study is determined and the additional perceived value is estimated by elements such as the presence of the occurrence risk of contingent events, volatility and the existing risk on cash flows. Using real options methodology made it possible to estimate an additional value to the project in a more accurate manner compared to the value that would have been obtained applying the traditional methodology of discounted cash flow. In addition, the proper use of this methodology made it possible to determine which decisions must be taken throughout the execution of the project. This methodology allows the improvement of the financial decision making within a particular context, enriched by an analysis that goes beyond the traditional valuation model. Thus, it is intended to expand the application range to other economic sectors in which there is little research

A real options model of phased migration to cellular manufacturing

The literature is replete with models that examine various aspects of cellular manufacturing (CM), such as optimisation of cell layouts. However, many firms may realise zero to marginal returns from CM. Given this uncertainty, the manager should first determine the value of CM to the firm before deploying it. Although traditional valuation models employing discounted cash flow analysis allow for uncertainty, they treat future investments as fixed when computing the investment’s present value. The real options (RO) logic of valuation allows the manager to exercise the option to invest in or abandon a project based on expected outcomes. Future investments are thus options. This paper presents an RO model for CM migration that addresses whether a firm should migrate to CM; and it prescribes the sequence of cell deployment, which has not been addressed in the literature. Our model is also much more transparent and accessible to practitioners, with an accompanying software tool for prospective users. Finally, we use simulation extensively to discover the drivers of the optimal cell deployment sequence. Our results show that there is a complex interplay between net present value, speed of cellularisation, inter-cell learning and volatility in terms of their influence on the cell sequence.

What Is a Firm’s Life Expectancy? Empirical Evidence in the Context of Portuguese Companies

AbstractIt isa fact that the uncertainty about a firm’s future has to be measured and incorporated into a company’s valuation throughout the explicit analysis period – in the continuing or terminal value within valuation models. One of the concerns that can influence the continuing value of enterprises, which is not explicitly considered in traditional valuation models, is a firm’s average life expectancy. Although the literature has studied the life cycle of a firm, there is still a considerable lack of references on this topic. If we ignore the period during which a company has the ability to produce future cash flows, the valuations can fall into irreversible errors, leading to results markedly different from market values. This paper aims to provide a contribution in this area. Its main objective is to construct a mortality table for non-listed Portuguese enterprises, showing that the use of a terminal value through a mathematical expression of perpetuity of free cash flows is not adequate. We provide the use of an appropriate coefficient to perceive the number of years in which the company will continue to operate until its theoretical extinction. If well addressed regarding valuation models, this issue can be used to reduce or even to eliminate one of the main problems that cause distortions in contemporary enterprise valuation models: the premise of an enterprise’s unlimited existence in time. Besides studying the companies involved in it, from their existence to their demise, our study intends to push knowledge forward by providing a consistent life and mortality expectancy table for each age of the company, presenting models with an explicitly and different survival rate for each year. Moreover, we show that, after reaching a certain age, firms can reinvent their business, acquiring maturity and consequently postponing their mortality through an additional life period.

What is the Rational Value of Facebook Inc.? A Valuation Based on the Schwartz/Moon (2001) Model

Facebook Inc. is a paragon of an internet growth company. It is evaluated using a valuation approach based on the Schwartz/Moon (2001) model, as this model features significant advantages over traditional valuation models and more adequately captures the characteristics of growth companies. As of September 30, 2012, the fundamental share value determined is $26.53, exceeding the market price per share of $22.66 by 22.48%. The subsequent sensitivity analysis reveals high sensitivities of the result to certain input parameters, emphasizing the importance of their thorough estimation.

초기 게임개발사 특성을 고려한 가치평가 모형 연구

The financial value of early stage start-up has a tendency to depend more on the non-financial factors, but these are not efficiently reflected in the traditional valuation models. Therefore, most of valuation practices for early stage start-ups heavily relied on the guts of experts. To remedy this, this study suggests a model to directly reflect the non-financial factors especially for the real options approach. Actual process of valuation and the adjustment way were developed considering the characteristics of early stage start-ups in the game industry.

The Effect of Executive Confidence, Ability, and Private Beliefs on the Valuation of Executive Stock Options

It is widely believed that executives value stock options at considerably less than market or Black-Scholes-Merton values. This belief is contingent, however, on a subtle assumption that executives are like price-taking shareholders. We argue that executives not only have ability to influence the stock but are also confident and optimistic, leading them to a private valuation of the stock that exceeds the market value. Hence, executives value their options at more than would be obtained by traditional executive stock option valuation models. In some cases, these options are worth even more than the values of analogous publicly traded options. We also find that consideration of these effects can alter early exercise behavior, leading executives who perceive themselves to be better to exercise at higher prices. Our results contrast with the existing body of literature that values stock options as though executives were simply ordinary investors with poorly diversified portfolios.

Traditional versus Clean-Surplus Valuation Models: Evidence from U.K. Stocks

Early theoretical work on equity valuation suggests that equity prices are a function of such variables as dividends and growth in dividends. Over the past few years the clean-surplus valuation approach has rekindled interest in empirical valuation models. This article employs panel data methodology and uses equity prices from the London Stock Exchange to compare empirically the performance of the traditional and the more-recent models of equity valuation. On the whole, the results show that the performance of the traditional valuation model is similar to that of the clean-surplus valuation model. <b>TOPICS:</b>Security analysis and valuation, technical analysis, exchanges/markets/clearinghouses

Heterogeneous Agents and the Indifference Pricing of Property Index Linked Swaps

Swap spreads predicted by the traditional risk-neutral valuation models are much lower than the quoted market spreads for property index linked swaps (Patel and Pereira, Journal of Real Estate Finance and Economics, 36:5-21, 2008). This paper attempts to develop a utility indifference-based model for evaluating the reservation spreads of swap receivers and payers based on the principle of expected wealth utility equivalence rather than the traditional risk-neutral argument. Under the proposed model framework, this paper addresses the determination of the swap spreads. When the incompleteness of real estate markets and heterogeneity of representative agents are taken into consideration, it is shown that heterogeneous risk preferences and beliefs about expected future property returns are the remarkable determinants for the swap spreads. Our model also identifies market power and the settlement rules in the event of counterparty default as important factors in determining the swap spreads. Our model provides a possible interpretation for the difference between the spreads predicted by the traditional models and the actual market spreads.

The ‘Real’ S Corp Debate: Impact of Embedded Tax Rates from Public Markets

Abstract The S corporation models measure the benefit of the avoidance of dividend and capital gains taxes. But just when you might have thought the S corporation debate was about to settle down around this simple concept, we have more to talk about than ever. While traditional S-corporation valuation models acknowledge that the comparison is to the public C-corporation investor, they have been silent as to the distinction between the current dividend and capital-gains-tax rates and that which is part of the equity-risk premium. The distinction—which has been the subject of significant study in the financial literature—is notable and bears further discussion. The author would like to give special thanks to David Dufendach, CPA/ABV, ASA, Executive Director of Advisory Services, Grant Thornton, LLP, for his assistance an guidance with the preparation of this article.