Abnormal Earnings Valuation Model

How do you value a company? It produced fifty million in profits this year, will lose twenty million next year, and probably make over one hundred million the following. Weird earnings streams cause valuation predictions, so the Abnormal Earnings Valuation Model relies on book value more predominantly than prognosticated future earnings when making those calculations. Future earnings are taken into account in the Valuation Model via the Discounted Cash Flow Method (or DCF Method), but the WACC Model, or Weighted Average Cost of Capital Model, is replaced with some dartboard driven estimation of the cost of the firm's equity.

The goal here lies in trying to figure out whether or not company management did a good job deploying the scarce resource of their own capital as they ran the business. So many vagaries exist, however, in the numbers applied to derive a conclusion using this method, that many professionals would prefer the BDD Method, which requires the deployment of a blindfold, a donkey, and a dartboard.