Abstract:

Analysts use a wide spectrum of models for assessing the company´s value. Method of fundamental analysis are theoretically compiled in detail and well described in literature. According to [2], there are 3 or 4 [3] approaches to valuation. This paper focuses only on the first approach, discounted cash flow models, especially on dividend discount models. The present value of company is estimated using a simulation. The input parameters were set in a relatively moderate way in our simulation. 2 types of shareholders – pessimists and optimists – are taken into account. They want to invest in shares only for a short term, i.e. for 3 years, and then they want to sell the shares. Great differences in company´s present value are obtained. Present values of company range from 51 to 69 units of money. Professional´s analysts estimates of the company´s value show, like our simulation, the different results. It is evident that the use of discounted models depends on setting input parameters. It is necessary to include other factor for assessing the company´s value, e. g. macroeconomic factors. As Siegel [7] or Damodaran [1] pointed out, the company´s value depends on interest rate or on tax law changes. The results of discounted models cannot be simply used to estimate the company´s value within a longer-term investing period. The aim of this paper is to prove that the aforementioned methods, although they are very well theoretically processed, do usually not provide good results when predicting future share prices.