I came up with a big difference in values between cash flow and asset valuation techniques.
It depends upon the objectives of the analysis. If it is about the market value of a company it should be based on the net present value of cash flows predicted with appropriate models. The fact that a company is currently mismanaged implies that there is a potential for expected market value increase under a new management. If the objective is social- cost benefita analysis, cash flows are only the starting points as prices may be distorted. Some ideas are in
Selling Public Enterprises: A Cost/Benefit Methodology
Leroy P. Jones, Pankaj Tandon, Ingo Vogelsang
Editore: The MIT Press (1990), or in a chapter about British Telecom in Florio (2014) Applied Welfare Economics (Routledge)
Cash flow technique under estimate value when a company is mismanaged as the case in public or government owned companies, however the asset valuation technique may over-estimate value due mispricing of assets.
It depends upon the objectives of the analysis. If it is about the market value of a company it should be based on the net present value of cash flows predicted with appropriate models. The fact that a company is currently mismanaged implies that there is a potential for expected market value increase under a new management. If the objective is social- cost benefita analysis, cash flows are only the starting points as prices may be distorted. Some ideas are in
Selling Public Enterprises: A Cost/Benefit Methodology
Leroy P. Jones, Pankaj Tandon, Ingo Vogelsang
Editore: The MIT Press (1990), or in a chapter about British Telecom in Florio (2014) Applied Welfare Economics (Routledge)
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