标题: relevance of residual income model [打印本页] 作者: ruchita 时间: 2011-7-13 16:17 标题: relevance of residual income model
A minority share holder would use the DDM to value his shares. A majority shareholder would discount cash flows to value his shares. Who is the residual income model relevant to?作者: SeanWest 时间: 2011-7-13 16:17
NO ONE....it stinks.
Use RI if FCF is negative for the foreseeable future or when cash flows are volitile...or if you want to get laughed at in meetings.作者: Pegasus2008 时间: 2011-7-13 16:17
they mention in the books that it isnt used very often, hence I hope there won′t be a question on it because it is time consuming and annoying...so if FCFF I suppose. All firms should pay dividends. Yeah!作者: tianxin 时间: 2011-7-13 16:17
If they are gonna ask RI, it'll most likely be like a one-stage RI to test that you remember adding the BV or more concept related questions.作者: stalkey 时间: 2011-7-13 16:17
june2009 Wrote:
-------------------------------------------------------
> NO ONE....it stinks.
>
> Use RI if FCF is negative for the foreseeable
> future or when cash flows are volitile...or if you
> want to get laughed at in meetings.
That's funny, because from what I've heard, Goldman Sachs employs the Residual Income approach quite regularly.作者: RepoToronto 时间: 2011-7-13 16:17
i think the text also mentioned to use it when dividends are not paid and also used to measure goodwill (excess over book value)...作者: FinancialAnaly 时间: 2011-7-13 16:17
Am i correct in saying that the residual income model PUNISHES companies that pay dividends? Paying dividends reduces book value value per share作者: zephyranalyst 时间: 2011-7-13 16:17
know that RI models assume "clean surplus relation" - from curriculum: "any acctg charges taken directly to equity accounts will cause clean surplus relation not to hold. Example: AFS securities.
RI model valuations recognize value earlier than DDM & FCF. DDM & FCF rely largely on terminal values which are highly uncertain (far in the future). RI model's inclusion of the known current value (book value) reduces forecast error.
Use RI models when:
- firms doesn't pay dividends -OR- dividend stream is too volatile
- expected FCF is negative
- terminal value forecast is highly uncertain.
