Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024)

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Business Valuation Limitation: Dividend Discount Model and Free Cash Flow model

Authors
Chen Eric Zhang1, *
1Beijing New Oriental Foreign Language School at Yangzhou, Guangling District, 958 Qinyou Rd, Yangzhou, Jiangsu, 225003, China
*Corresponding author. Email: zhangjing109@xdf.cn
Corresponding Author
Chen Eric Zhang
Available Online 24 February 2025.
DOI
10.2991/978-94-6463-652-9_46How to use a DOI?
Keywords
business valuation; DDM; FCFF; dividend; cashflow; discount rate; growth rate
Abstract

Valuation plays a crucial role in investment activity, especially for investors seeking profits in the stock market. Accurate business valuation is key to decision-making. Business valuation methods provide essential data to guide investment decisions by evaluating whether the stock is overestimated or underestimated. This research paper introduced two methods, the DDM (dividend discount model) and FCFF (free cash flow to the firm) model, to help with the firm’s valuation. A real-life example is the Shandong Hi-speed Company, which was selected to show the use of business methods. The outcome of the case study shows significant issues with these two business valuation methods. The cost of capital, cash flow growth rate and the future forecast are the main issues with these valuation methods. This research will help investors make investment decisions and avoid investment loss. The investors will benefit from this research by knowing how to use these two business methods to value the stock and will also benefit from knowing the limitations of the business valuation methods.

Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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Volume Title
Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024)
Series
Advances in Economics, Business and Management Research
Publication Date
24 February 2025
ISBN
978-94-6463-652-9
ISSN
2352-5428
DOI
10.2991/978-94-6463-652-9_46How to use a DOI?
Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Chen Eric Zhang
PY  - 2025
DA  - 2025/02/24
TI  - Business Valuation Limitation: Dividend Discount Model and Free Cash Flow model
BT  - Proceedings of the International Workshop on Navigating the Digital Business Frontier for Sustainable Financial Innovation (ICDEBA 2024)
PB  - Atlantis Press
SP  - 436
EP  - 443
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-652-9_46
DO  - 10.2991/978-94-6463-652-9_46
ID  - Zhang2025
ER  -