Application of income valuation methods: Value spread vs. net income

by Kamila RŮŽIČKOVÁ

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JEL classification

  • Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
  • Agricultural Markets and Marketing; Cooperatives; Agribusiness

Keywords

Agricultural company, company value, income valuation, net income, value spread

Abstract

The issues preceding the process of company valuation via income valuation methods are explored in this paper. Income valuation methods are applicable only if particular requirements are fulfilled. The fulfilment of some of these requirements can be verified by the application of two selected variables: the value spread and the net income. The aim in this paper is to examine the dependence between these two variables in Czech agricultural companies using the chi-square test of independence. Based on empirical tests, it is proved that there is slightly positive dependence between these variables and that the value spread and net income are appropriate for the identification of suitable companies for the application of income valuation methods.