Comparison of Discounted Cash Flow and Economic Value Added Valuation Methods : Protect Company LLC

Abstract

There were two principle objectives in this thesis: a theoretical and a practical one. The theoretical aim was related to the comparison of two most-widely used business valuation methods, Discounted Cash Flow (DCF) and Economic Value Added (EVA). By comparing the two methods the author gave a recommendation which valuation approach would be more applicable in small entities and their appraisal processes. The practical objective referred to the actual valuation of the Client Company with the use of the selected methods.

The theoretical framework of the thesis presents a description of what business valuation is, including its importance and misconceptions about it. Additionally, the theoretical part of the work provides a basic overview of different business valuation approaches and a deep study of the two most-widely used ones, DCF and EVA, along with their advantages and disadvantages, key components and the valuation processes.

The result of the thesis is the Client Company’s value, which can be used by the Company’s management in negotiations with investors and debtors. Moreover, the Company might use the outcome of the study in case of merger or acquisition propositions. Besides that, the author, performing as the Company’s consultant during the work, suggested to the Client’s management a few methods of the future financial situation improvements.