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Valuation of Negative Earning Firms

Valuation of Negative Earning Firms

Faisal Usmani, Atif Ghayas, Mohd Sarim
Copyright: © 2020 |Pages: 11
ISBN13: 9781799810865|ISBN10: 1799810860|ISBN13 Softcover: 9781799810872|EISBN13: 9781799810889
DOI: 10.4018/978-1-7998-1086-5.ch007
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MLA

Usmani, Faisal, et al. "Valuation of Negative Earning Firms." Valuation Challenges and Solutions in Contemporary Businesses, edited by Sinem Derindere Köseoğlu, IGI Global, 2020, pp. 126-136. https://doi.org/10.4018/978-1-7998-1086-5.ch007

APA

Usmani, F., Ghayas, A., & Sarim, M. (2020). Valuation of Negative Earning Firms. In S. Köseoğlu (Ed.), Valuation Challenges and Solutions in Contemporary Businesses (pp. 126-136). IGI Global. https://doi.org/10.4018/978-1-7998-1086-5.ch007

Chicago

Usmani, Faisal, Atif Ghayas, and Mohd Sarim. "Valuation of Negative Earning Firms." In Valuation Challenges and Solutions in Contemporary Businesses, edited by Sinem Derindere Köseoğlu, 126-136. Hershey, PA: IGI Global, 2020. https://doi.org/10.4018/978-1-7998-1086-5.ch007

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Abstract

This book mostly concentrates on firms with positive earnings, but this chapter focuses on the negative earnings firms or firms with very low earnings. It is easier to value a positive earning firm than a company with negative earnings. Analyzing negative earning firms has always created problems for researchers and analysts. In case of a negative earning firm, growth rates cannot be predicted or used in the valuation of firms. When current income of the firms is negative, growth rate will make it more negative. Tax computation becomes more complicated and the Going Concern Assumption does not apply properly. Authors start with complications in valuing negative earning firms, discuss the causes of negative earnings, and whether the problem is short-term, long-term, or cyclical in nature. Finally, authors provide the appropriate valuation technique for each case.

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