In this paper, we review twelve valuations of Terra performed by Spanish and non-Spanish bank analysts and brokers. Of the twelve valuations, only one used cash flow discounting. Another valuation was based on multiples, but also used cash flow discounting to perform a reverse valuation. All others used several multiples. Only one valuation report recommended to sell. Terra started trading on the stock market in November 1999. The placement price was 13 euros per share (11.81 for retailers). In February 2000, its price stood at 139.75 euros. Between November 1999 and February 2000, Terra provided a return of 975% for its shareholders. However, by December 2000, the share price had plummeted to 11.6 euros, 8.3% of its February high. The average annual volatility of the Terra share was almost 100%. If you can't find a rational explanation for a share to continue rising, you can be sure that it will fall. To become a millionaire, you must sell your shares at the right time. A website is not necessarily a business. Selling below cost gets you lots of customers, but not much money.

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Internet Valuations: The Case of Terra-Lycos

Dynamics of the Fundamental Valuation Models in US housing construction companies during the Financial Crisis

The methods used for the company valuation can be divided into 3 main groups: methods based on patrimony, methods based on financial performance, methods based both on patrimony and on performance. The company valuation methods based on patrimony are implemented taking into account the balance sheet or the financial statement. The financial statement refers to that type of balance in which the assets are arranged according to liquidity, and the liabilities according to their financial maturity date. The patrimonial methods are based on the principle that the value of the company equals that of the patrimony it owns. From a legal point of view, the patrimony refers to all the rights and obligations of a company. The valuation of companies based on their financial performance can be done in 3 ways: the return value, the yield value, the present value of the cash flows. The mixed methods depend both on patrimony and on financial performance or can make use of other methods.

Company valuation methods based on patrimony

The Residual Earnings (RE) model has informed the capital market research over the last twenty years. To employ it in an empirical setting researchers commonly make extra assumptions about how future RE are related to and predicted by today’s observed numbers. 
In this article, we show that the RE valuation relation can be estimated without a priori assumptions on exactly how observable data projects future earnings. The linkage between informative current values and expectations of future abnormal earnings is consistently inferred directly from the data. By letting the data speak we eliminate the risk of misspecifying the mechanism of expectation formation through unfitting assumptions.

Hieu Le

Papers

Valuing U.S. Corporates by Applying Discounted Cash Flow Valuation