Firm assessment with reduced cash flow analysis: An application in BIST automotive industry

One of the most discussed issues in today's financial world is company valuations. All market actors, especially analysts, try to determine their values in the most accurate way in public offering, merger, acquisition, or stock selection. Although there are many company valuation methods, the most used one is the discounted cash flow method. This method provides information about the value of the company by reducing the cash flows thought to be generated in the future to its present value with a certain discount rate. The automotive sector in Turkey is one of the locomotive sectors of the economy. The role of the automotive industry in the Turkish economy is undeniable in terms of both the added value it creates and its contribution to employment. Since the automotive sector is also a buyer or supplier of other sectors, it has a strategic importance for the development of these sectors. In addition to all these, it also plays a key role in the current account balance. The aim of this study is to evaluate the automotive companies in Borsa Istanbul with the discounted cash flow method, which is one of the most used company valuation methods. For this purpose, future projections were created by using the financial statements of five automotive companies in BIST between the years 2014-2020. The results of the study showed that the firm value of four companies was close to but below the stock market prices, whereas the firm value of one company was above the stock market prices. However, it has been observed that the free cash flow method to the firm does not yield significant results for all automotive companies.