While many have commented on Facebook’s market capitalization following its IPO later this year, the media has reported mostly back-of-the-envelope calculations, such as a multiple of current earnings and other estimates. A more conceptually-grounded approach would value Facebook based on projected free cash flows and also, perhaps, residual earnings.

Such an approach would also likely be similar to that followed by the institutions that may commit substantial sums for investment. Using this well-supported method, a reasonable case can be made for a value that exceeds $100 billion.

Facebook’s February 1 initial public offering filing (S-1) assumes a perpetual growth rate of 5%, yet five to six years out, Google and Amazon.com experienced annual sales growth rates that far exceeded that. The S-1 also mentions an investor discount rate of 15%, yet the S&P 500 index is currently priced at an equity risk premium of more than one-half of that amount, and surely Facebook will look more rather than less like a large-cap company in the not-too-distant future.

Then there’s the issue of taxes. For example, Apple’s effective tax rate is currently about 25% because of substantial foreign earnings taxed at lower rates. Unless they change the tax rules, there’s no reason to that Facebook should not follow suit and be taxed at far less than the statutory rate.

Add these factors to an analysis that uses Facebook’s current financials as its starting point, which are squeaky clean from an accounting standpoint, and a valuation topping $100 billion becomes a real possibility.

Of course much can (and will) happen between now and the public offering.

Listen to audio of Professor Paul Griffin’s Facebook valuation