Valuation of small to medium sized companies using spatial information: An empirical example from the fruit subsector

Abstract

The Discounted Cash Flow (DCF) model, similar to other firm valuation models, uses temporal information for a firm to forecast future results. However, the lack of temporal information for many companies hinders the application of the DCF model. To overcome this limitation, we proposed an approach based on the spatial information of the analysed companies. In particular, to get firms’ valuation our approach combined both data from companies that are geographically proximal to the analysed company and data from the analysed company. Based on this approach, we provided an empirical example to demonstrate that the economic value computed with our proposal, the Spatial-Firm Economic Value, was consistent with the traditional economic value after application of the DCF model. In particular, we found a minimal difference in terms of absolute deviations between our proposal and the firm’s valuation applying traditional valuation techniques. Thus, this study demonstrated the relevance of considering the spatial dimension as an additional source of information to determine firms’ value in the Fruit subsector when there is not available temporal information to apply traditional valuation methods.

Keywords

• location
• firms’ valuation
• spatial effects
• Discounted Cash Flow model
• small and medium enterprises