Proceedings

qualitative data, present in the competition area, provides a faithful image of the value
of the companies. The usefullnss of these estimations lies therefore in their ability to
provide a value determined by the influence of most factors that affect the economic
environment.
In periods marked by economic instability, the pecuniary measurement approach of
the company becomes a difficult process, receiving special importance. In this sense,
in the present study, we aim at identifying, through a mainly quantitative analysis, the
extent to which evaluation methods provide appropriate information on the value of
the companies, stressing, for the companies quoted in the Bucharest Stock Exchange,
the relevance of each approach in supporting financial decisions.
1. APPROACHES AND VIEWPOINTS ON THE EVALUATION METHODS
OF THE COMPANY
The evaluation of economic entities is a complex activity that requires the use of
inter-disciplinary information benchmarks such as accounting, finance, management,
law, or taxation, as well as an important connection with the practice, thus coagulating
the three major approaches of the field.
1.1. The method of the discounted cash flow
Based, according to financial theory, on the ability of the entity to generate future
cash flows, this method is considered to have higher information valences than the
other approaches.
The value of the company is equal to the sum of the future cash flows it will generate,
made present at a rate that reflects the cost of the resources employed to achieve them
(Thauvron, 2007). The definitions of the used flows are extremely varied. Usually, the
free cash-flows after tax, the net benefit, the current result, or the gross operational
excess are retained (de La Bruslerie, 2006). Used with precedence, free cash flows are
generated by the operating activity, without quantifying the effect of debts, which are
computed after tax (Fernandez, 2010).
The method of discounted cash flows, also known as DCF, is at the center of the
concerns of estimating the value of the company from the investors’ perspective, from
that of the company’s capital owners (the shareholders), and of bonds owners (Berk,
et al., 2008).
Ceddaha (2010) notices the use of the weighted average cost of capital – WACC to
the purpose of discounting the mentioned flows, a measure that must encompass the
payment requirements of capital providers. It is necessary to make a distinction
between the cost of borrowed resources and the cost of the own capital. Sander et al.
(2007), Ingram et al. (2010) and Fama et al. (2004) stated that, in the case of listed
companies, the cost of equity is calculated, especially, through the CAPM model
(Capital Assets Pricing Model) and other models based on the market equilibrium are
used alternative. Shareholders always wish to be paid a higher quantum than the debt
cost because the creditors are not affected in the same manner by the risk of
bankruptcy of the company. For this reason, WACC is computed as a weighted
average of the risks taken by the two categories of financial resource providers.
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