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2 Theoretical Background 2.1 Traditional Valuation Methods Internet companies exhibit unique characteristics that are fundamentally different from those of traditional industries. Companies in traditional industries are more dependent on factors of production, whereas Internet companies have more intangible assets. Prior studies categorized the most used valuation methods into three main approaches: income, asset- based, and market approach (Kirk & Wishing, 2018; Saari, 2012). We discussed these three approach one by one and examined their suitability for valuing internet companies. 2.1.1 Income approach Income approach values the company with a focus on its income statement or cash flow statement. One widely used method under income approach is discounted cash flow (DCF) method. Under the DCF method, the value of a company is derived from discounting all of its expected future cash flows to the present value at a risk-free rate (Damodaran, 2019a). This is shown in equation (2.1). πΆπΉ πΆπΉ πΆπΉ β πΆπΉ π=1+2+β―+π=βπ (1 + π ) (1+π)1 (1+π)2 (1+π)π π π ππππ=π (2.1) Where V denotes value, CF denotes projected cash flow, π denotes risk-free interest rate, n denotes time period from one to infinity. - 14 - πPDF Image | Analysis of ByteDance with a close look on Douyin TikTok
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