Valuation Techniques: Discounted Cash Flow, Earnings Quality, Measures of Value Added, and Real Options

CONCLUSION

The simple technique of earnings quality analysis shown here would have done wonderfully over the past half century in terms of generating superior stock returns. Although this quantitative method has worked well, it will probably get arbitraged away. Still, I believe that using good fundamental analysis to detect accounting distortions by understanding the accounting and the company’s strategy and how they fit together will always be an incredibly important source of value added for the investment management community.