Atleast 250 words with no plagiarism. Thank You Determine how a firm's valuation using the earnings-based...

Atleast 250 words with no plagiarism. Thank You

Determine how a firm's valuation using the earnings-based valuation method would be impacted when using aggressive versus conservative accounting. Provide evidence to support your conclusion.

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ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Earnings based valuation:

It is a method of equity valuation in which the value of the company is determined by discounting the future earnings of the company.

In an aggressive accounting method, the company tends to enhance its earnings by inflating its profits.
It tends to ignore future losses or liabilities.

Due to this, the forecasted future earnings of the company is higher by the analyst.

Hence enhancing the VALUE OF THE COMPANY AND ITS STOCK PRICE from its intrinsic value.

Example: Enron in the USA, Satyam in India.

In conservative accounting methods, the company tends to recognise all the possible future losses but not any gains. Due to which the profit of the company tends to decrease.

Due to this, the forecasted future earnings of the company is lower by the analyst.

Hence decreasing the VALUE OF THE COMPANY AND ITS STOCK PRICE from its intrinsic value.

jeff jeffy answered 1 year ago

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