Using accounting information for financial planning and forecasting: An application of the Sustainable Growth Model using Coca-Cola

Authors

John C. Gardner, Oakland University
Carl B. McGowan, Norfolk State University
Susan E. Moeller, Eastern Michigan UniversityFollow

Document Type

Article

Publication Date

2011

Department

Accounting and Finance

Abstract

In this paper, we provide a detailed example of applying the free cash flow to equity valuation model proposed in Damodaran (2006). Damodaran (2006) argues that the value of a stock is the discounted present value of the future free cash flow to equity discounted at the cost of equity. We combine the free cash flow to equity model with the super-normal growth model to determine the current value of Coca-Cola. At the time of this paper, we determined a value of Coca-Cola at $161 billion using the free cash flow to equity model, and the actual market value of Coca-Cola was $150 billion. [PUBLICATION ABSTRACT]

DOI

10.19030/jbcs.v7i5.5599

Citation

Gardner, J. C., McGowan, C. B., & Moeller, S. E. (2011). Using accounting information for financial planning and forecasting: An application of the Sustainable Growth Model using Coca-Cola. Journal of Business Case Studies, 7(5), 9–15.