Fundamental value of equity: Its application to management

Abstract

The paper analyzes connection between market capitalization and fundamental value of equity of a company estimated on the base of residual earnings model. The authors use a version of this model, which is well-known in the Western literature, adapted to Russia. It is concluded that book value of equity and residual earnings as components of residual earnings model can explain stock prices also in Russian market. Some applications to strategic management are given.