CHAPTER 18
Closing Thoughts
Theproblem in valuationis not thatthere arenot enough
models to value an asset; it is that there are too many.
Choosingtherightmodeltouseinvaluationisascriticalto
arrivingatareasonablevalueasunderstandinghowtousethe
model.Thischapterattemptstoprovideanoverviewofthe
valuation models introduced in this book and a general
frameworkthatcanbeusedtopicktherightmodelforany
task.
CHOICES IN VALUATION MODELS
Inthebroadestpossibleterms,firmsorassetscanbevalued
inoneoffourways—asset-basedvaluationapproacheswhere
we estimate what the assets owned by a firm are worth
currently, discounted cash flow valuation approaches that
discountcashflowstoarriveatavalueofequityforthefirm,
relative valuationapproaches thatbase value on multiples,
and option pricing approaches that use contingent claim
valuation.Withineachoftheseapproaches,therearefurther
choices that help determine the final value. (SeeFigure 18.1.)
FIGURE 18.1The Choices in Valuation Models