The method adopted for pricing in an Initial Public Offering is a key issue in the studies on business valuation. In particular, various researches sought to verify which valuation methodologies are preferable in the context of an initial public offering.
The review of the main literature shows that Discounted Cash Flow, Market Multiples, Dividend Discount Model and, even if just to some degree, Economic Value Added are the most popular methodologies in the valuation practice.
The comparison among different valuation methods, proposed in the literature and variously applied in national and international practices, reveals the necessity to pay more attention to valuation mechanisms that drive the pricing of the shares to be listed.
The topic is linked to the ever more pertinent debate on the use of different methods in professional practice: financial experts and analysts tend, in fact, to compare results according to different estimates.
Three Residual Income Valuation Methods and Discounted Cash Flow Valuation