Which of the Three Most Important Models of Business Valuation: DCF, Relatives and Options, Properly Estimate the Value of Mexican Companies?

Abstract

This work seeks to determine which of the most important valuation models estimate the value of Mexican companies properly. This will be done, essentially, by calculating the effect that a future financial event, like a fall in income, generates on the value of companies. Initially, the article will include a general analysis of the valuation processes. Then, an explanation of the methodology used with each of the selected models. Finally, the valuations of companies of the Mexican stock market and the analysis of the results. The valuations were made on December 31, 2011. The methodology used with the DCF model was the free cash flow discounted at the WACC; with relatives, the P/E, P/B, and P/S, and with options, the real option for liquidation.
Keywords: Business valuation, Mexican stock market Value, Valuation.