ABSTRACT
The last 20 years has seen significant development in valuation models. Up to the 1990s, the premier model in both textbooks and practice was the discounted cash flow model. Now, alternative models based on earnings and book values – the so-called residual earnings model and the abnormal earnings growth model, for example – have come to the fore in research and have made their way into the textbooks and into practice. At the same time, however, there has been a growing skepticism, particularly in practice, that valuation models do not work. This finds investment professionals reverting to simple schemes such as multiple pricing that are not really satisfactory.
