Evaluating the Efficiency Between Discounted Cashflow Valuation and Residual Income Valuation

Using Australia and New Zealand Banking Group as an Example

DOI

10.2991/assehr.k.211209.001How to use a DOI?

Keywords

Discounted cashflow valuation; Residual income model; Firm valuation techniques

Abstract

In this paper, we have investigated the efficiency of two valuation models, discounted cashflow method and residual income method respectively. To prove the reliability and accuracy of the result shown in this essay, we will take Australia and New Zealand Banking Group as an example. Through these two approaches, we have systematically investigated the estimated share price under the same prediction on the figures for the balance sheet and the income statement. Under the model of discounting the cashflows, the share price is expected to increase in the projected years, which shows great potential for profit-making. However, the model of discounting the residual income shows a reverse effect that infers a decrease in the price per share. After analysing and comparing the results of the two methods with current conditions, the residual income model is recognized as the more accurate way to forecast financial performance. Therefore, the investors may use this model to foresee performance and make investment decisions on ANZ or other similar banks, such as Commonwealth Banking and Westpac Banking.

Copyright

© 2021 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article under the CC BY-NC license.

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TY  - CONF
AU  - Yingjun Lan
PY  - 2021
DA  - 2021/12/15
TI  - Evaluating the Efficiency Between Discounted Cashflow Valuation and Residual Income Valuation
BT  - Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)
PB  - Atlantis Press
SP  - 1
EP  - 5
SN  - 2352-5428
UR  - https://doi.org/10.2991/assehr.k.211209.001
DO  - 10.2991/assehr.k.211209.001
ID  - Lan2021
ER  -