Table 3 Main pros and cons of the two main valuation methodologies (Bogdan and Villiger 2010)
Advantages | Disadvantages | |
|---|---|---|
DCF | Easy to implement and to understand | Misses the value of flexibility and market uncertainty |
Standard in all sectors of the economy | Not suitable for risk management | |
Real Options | Captures market uncertainty and the management’s ability to react | Relies on more hypothesis and requires more data |
Suitable for risk management | Technical | |
Improves strategic thinking if properly understood |