What is the difference between valuation methods based on discounted cash flows and those based on discounted dividends?
The dividends valuation method indirectly results in the valuation of the leverage effect (see chapter 40 of the Vernimmen) and the companys dividend payment policy, while the free cash flows method measures the value of ROCE independently of the financial structure and the dividend payment policy. This last method should thus be the preferred method. Back to the top Question 8: I want to value a telecoms start-up company that has never made a profit or paid a dividend. I was wondering what methods I should use, since many of the methods described in the Vernimmen are based on the payment of a dividend. Answer: Your company must have a business plan which, through provision for investments and the gradual growth of the business, will lead to profits. The most appropriate method for this type of situation is the discounted cash flows method, which differs substantially from the dividends approach. In practice, we project specific cash flows over a certain number of years. This period is
