A practical comparison of firm valuation models: cash flow, dividend and income

Financial Services Institute of Australasia
Publication Type:
Journal Article
Journal of the Securities Institute of Australia, 2008, Winter (2), pp. 22 - 28
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Our research, based on a sample of listed Australian firms, indicates that the residual income model provides better estimates of firm value than two other commonly used models. It also provides advantages in that there is less need to forecast returns as far into the future and, with this model, a terminal value based upon a constant future return (or relatively low growth rates) can be used. This obviates the need to estimate an expected long-term growth rate, which is always problematic.
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