Valuing Companies by Cash Flow Discounting: Only APV Does Not Require Iteration

Abstract

The most used methods for valuing companies by Cash Flow Discounting are equity cash flow, free cash flow, capital cash flow and APV (Adjusted Present Value). Only APV does not require iteration All four methods, if properly applied, always give the same value. This result is logical, as all the methods analyze the same reality under the same hypotheses; they differ only in the cash flows or parameters taken as the starting point for the valuation. Many valuations are incorrect because the authors do not iterate and, therefore, the four methods do not provide the same value.