Wednesday, October 21, 2009

Reconciliation of residual income and free cash-flow models

I wasn't satisfied with the usual method of showing how the residual income model is equivalent to the free cash-flow or dividend discount model (see Ohlson & Juettner-Naworth, 2005). It is a stretch mathematically. So a few months ago, I decided to make my own method, which is now available online at Reading advised to finance students and anyone interested in the theory of equity valuation (others will probably find it boring and useless...).

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