I believe most public companies use a cash flow or discounted flow approach to
value their stocks. This is due to the free cash flow being able to be distributed as
dividends.
For my valuation company, I chose Nike and the earnings based approach
instead. i The residual income valuation approach uses book value of common
shareholders’ equity and expected future earnings to determine the value-
relevant expected future payoffs to the investor in place of future dividends or
future free cash flows. I believe this is the best way to value a company such as
Nike because Nike’s cash should be used as investment (inventory, R&D,
stores, advertising etc) to continuously grow their revenue and ultimately their
bottom line. By doing this, the equity/stock becomes more valuable over time.
