Discounted Cash Flow Methods for Equity Valuation
Sound investing requires that an investor does not pay more for an asset than its worth. There are those who argue that value is in the eyes of the beholder, which is simply not true when it comes to financial assets. Perceptions may be all that matter when the asset is an art object or antique automobile, but investors should not buy financial assets for aesthetic or emotional reasons; financial assets are acquired for the cash flows expected from them in future periods. Consequently, perceptions of value have to be backed up by reality, which implies that the price paid for any financial asset should reflect the cash flows that it is expected to generate.
Realize that at the end of the ...
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