Thiscanthenbecomparedtoothercompaniesthataresimilar
to the parent company.
OTHER NONOPERATING ASSETS
Firmscanhaveothernonoperatingassets,buttheyarelikely
tobeoflessimportancethanthoselistedsofar.Inparticular,
firms canhave unutilized assetsthat do not generatecash
flowsand havebookvaluesthatbear littleresemblanceto
market values. An example would be prime real estate
holdingsthathaveappreciatedsignificantlyinvaluesincethe
firmacquiredthem,butproducelittleifanycashflows.An
openquestionalsoremainsaboutoverfundedpensionplans.
Dotheexcessfundsbelongtostockholdersand,ifso,howdo
you incorporate the effect into value?
Unutilized Assets
The strength of discounted cash flow models is that they
estimatethevalueofassetsbasedonexpectedcashflowsthat
theseassetsgenerate.Insomecases,however,thiscanleadto
assetsofsubstantialvaluebeingignoredinthefinalvaluation.
Forinstance,assumethatafirmownsaplotoflandthathas
not been developed and that the book value of the land
reflectsitsoriginalacquisitionprice.Thelandobviouslyhas
significantmarket valuebutdoesnotyetgenerateanycash
flowforthefirm.Ifaconsciouseffortisnotmadetobringthe
expected cash flows from developing the land into the
valuation,thevalueofthelandwillbeleftoutofthefinal
estimate.