Equity valuation using accounting numbers in high and low price to performance firms

• Autor(a) principal: Pereira, António Carlos Vidal de Beça
• Data de Publicação: 2014
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/16648
• topic: Operating income; Operating Income Before Depreciation (OIBDP); Net Income (NI); P/OI; P/NI; Residual Income Model (RIM); Price­‐Earnings Multiple (P/E); Valuation errors; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

The surge of new industries in the economy has made commonplace a situation where firms are trading at prices greatly superior to their financial performance. In such conditions doubts may arise regarding the use of traditional valuation models to estimate the value of high price to performance firms. This dissertation has as its main goal to determine if there is a variation in terms of performance by traditional valuation models when applied to high and low price to performance firms. Furthermore, the representation of performance by an accounting number is also studied in order to determine if such classification results in significant differences across firms. It is found that when price to operating income before depreciation (P/OI) is used to separate firms into high and low P/OI sub-­‐samples more significant differences between sub-­‐samples arise than when price to net income (P/NI) is used. Moreover, valuation models are found to be less biased and more accurate, although explaining price worse, when applied to high P/OI firms. Finally, relevant differences are discovered regarding the use of nonfinancial information to represent firm performance by analysts and firms.