The Shareholder Value Method measures future free cash flows (from operations) less investments in fixed and working capital. It is not one period measure, but rather a measure of multiple year future free cash flows, discounted at the weighted average cost of capital. This approach is used by public companies to compare management's expectations to current market price of their stock and by private companies or divisions of large public companies, to obtain a proxy of the market value of their businesses.
For a more detailed explanation of these items, see Valuation Theory.
The Cost of Capital is the weighted average costs of debt and equity. The rate should be entered as a percentage, not a decimal (5.57% is input at 5.57, not .0557). Oracle recommends that you use one rate for all periods.
You can use this item to change or “normalize,” for valuation purposes of the period-by-period values for Taxable Operating Profit that you consider to be abnormally high or low due to prevailing industry or economic conditions that you do not expect to continue.
If you enter adjustments for periods, the amount is added to Taxable Operating Profit for each period entered and used in calculating Residual Value. While it affects the valuation, it does not change Operating Profit as it appears on the Income Statement.
The Debt Discount/(Premium) is used in the calculation of the Market-To-Book Residual Value and Price/Earnings Residual Value. The Debt Discount/(Premium) is used to adjust the book value of Debt and/or Preferred Stock to market values.
You can use this to change or “normalize,” for valuation purposes of the period-by-period values for Income Available for Common Shareholders that you consider to be abnormally high or low due to prevailing industry or economic conditions in that year which are not expected to continue.
If you enter adjustments for periods, the amount is added to Income Available for Common Shareholders used in calculating the Price/Earnings Residual Value for valuation. It does not change Income Available for Common Shareholders as it appears on the Income Statement.
This item represents your estimate, in future value currency, of what the “price tag” of the business is in each year of the forecast period, based on your expectations of prevailing conditions in that period. You must incorporate the costs of liquidation, including such items as transaction cost and recapture tax in this value.