Valuation models literature review Essay Example | Topics and Well Written Essays - 2750 words

Valuation models literature review - Essay Example My dissertation will focus on the financial reports of four different companies: BASF, DOW, SABIC, and Dupont. This will be aided by an economy and industry analysis as well as a ratio analysis for the each of the four firms. Valuation models will then be applied in order to arrive to price of the shares for each of the four firms. This literature review will help to find out the most appropriate valuation models to apply in order to arrive at a reasonable recommendation for investors who are interested in these four companies. A number of studies have focused on the usage of financial valuation models in the U.K. in order to evaluate a company’s equity. For example, Imam et al. (2008) aimed to find out the models that were used by financial analysts. They used a methodology that introduced the evidence by using two different ways—interviews with financial analysts and looking into the content of equity reports. Their study highlighted three major points: which valuation models are used by analysts, why are these models used, and how are these models used. In the same area, Demirakos et al. (2004) sought to explain financial analyst practices in terms of valuation by examining hypotheses related to the use of single period and multi-period forms, and also to test the usage of both the accrual and cash flow-based methods. On the other hand, Liu et al. (2002) measured the performance of a wide range of multiples and looked at the selection of relevant issues with the valuation using multiples mo del. An example from their paper showed the differences in the performance sector and the improvement of performance achieved by using other models to calculate multiples. In terms of industry importance, Alford (1992) tried to find out the impact of choosing comparables on size, sectors, and earnings growth on the accuracy of valuation by using price-earning multiples. Also, Boatsman and Baskin (1981) compared the accurateness of the price-earning multiples valuation model based on two sets of similar companies in the same sector. Moreover, Tasker (1998) tested among-industry models in the collection of similar companies by analysts and investment banks in acquisition transactions. The paper written by Barker (1999a) tested the valuation methods used by analysts and fund managers in order to discover the role of dividends in share valuation as well as to find out the importance of different valuation forms used in practice by fund managers and financial forecasters. Moreover, Barke r (1999b) applied both survey and market-based evidence in order to find out the more favorable valuation models, especially the