Accounting based valuations with multiple “anchors”

Abstract

Each accounting based valuation uses an anchor such equity book value or capitalised earnings, whose merits are shown by past literature. This paper extends accounting based valuations, so that each valuation can have different anchors at different points in time, for example an initial anchor and a "terminal" anchor. Each anchor is an accounting variable multiplied by a valuation multiple typically derived from comparable companies. These extended valuations combine residual income valuation and AEG valuation, and reinterpret the generalisation of AEG valuations by Ohlson and Johannesson (2016). Cash flow based valuations with multiple anchors are also presented.