Thereareatleasttwowaysin whichwecanvaluea firm
using asset-based valuation techniques. One is liquidation
value,whereweconsiderwhatthemarketwillbewillingto
payfortheassetsiftheywereliquidatedtoday.Theotheris
replacementcost,whereweevaluatehowmuchitwouldcost
ustoreplicateorreplacetheassetsthatafirmhasinplace
today.
Inthecontextofdiscountedcashflowvaluation,cashflows
toequitycanbediscountedatthecostofequitytoarriveata
valueofequity,orcashflowstothefirmcanbediscountedat
thecostofcapitaltoarriveatthevalueforthefirm.Thecash
flows to equity themselves canbe defined in the strictest
senseasdividendsorinamoreexpansivesenseasfreecash
flowstoequity.Thesemodelscanbefurthercategorizedon
the basis of assumptions about growth into stable-growth,
two-stage,andthree-stagemodels.Finally,themeasurement
ofearnings andcash flowsmay bemodified to match the
specialcharacteristicsofthefirm/asset—currentearningsfor
firms/assetsthathavenormalearningsornormalizedearnings