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The Complete Idiot's Guide to Stock Investing Fast-Track by Ken Little

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Intrinsic Value Using Discounted Cash Flows

While ratios offer some information about what the market considers a fair price today, those numbers can be distorted by many factors. The most common method of arriving at the intrinsic value of a stock is using the discounted cash flows method. Discounted valuation models are used to price a number of different assets. The model that most stock analysts use is the discounted cash flows method. It is a complicated process that involves some math and making some assumptions about things such as future revenue, free cash flow, and more. Don’t become discouraged by the math and projections, this is a tool you can use.

Before I dig deeper into the discounted cash flow model, it is important that you understand ...

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