Journal of Finance 1995

The Valuation of Cash Flow Forecasts: An Empirical Analysis

Steven N. Kaplan¹; Richard S. Ruback^2,3

¹ University of Chicago · ² Graduate School of Business, University of Chicago and National Bureau of Economic Research (NBER), and Harvard Business School and NBER, respectively. Lori Kaufman, Betsy McNair, and Kelly Welch provided able research assistance. Yacine Ait-Sahalia, Willard Carleton, Eugene Fama, Wayne Ferson, Anth · ³ Harvard Business School

Abstract

This article compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. For our sample of 51 HLTs completed between 1983 and 1989, the valuations of discounted cash flow forecasts are within 10 percent, on average, of the market values of the completed transactions. Our valuations perform at least as well as valuation methods using comparable companies and transactions. We also invert our analysis by estimating the risk premia implied by transaction values and forecast cash flows, and relating those risk premia to firm and industry betas, firm size, and firm book-to-market ratios.

DOI

10.2307/2329344

Sources

openalex

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓