Stocks are assets. The true value of any asset is simply the discounted value of all future cash flows. This holds true for stocks, bonds, property, natural resources, and even collectibles. To calculate the value of an asset you simply estimate all future cash flows and discount them at an appropriate rate. When you go through this exercise for a company you quickly realize that the value of any individual year's worth of cash flows accounts for a relatively small portion of that company's value. The majority of a company's value is determined by adding up discounted cash flows far into the … [Read more...]
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