The foundations of valuation arise from a simple concept. Investors buy securities to increase their wealth, not to go broke. If the securities of a company do not represent an ability to generate cash flows now and in the future, the price of those securities will ultimately decline. Estimating that cash-generating capacity is the task of the equity analyst.
The tools that have been developed to deal with this task usually take the form of some type of spreadsheet and formulas that combine both the timing and magnitude of cash flows in some periodic accumulation, either quarterly or annual periods, stretching out into the misty future.
How to estimate these cash flows and the formulas that are used to translate those flows into an intrinsic value in the present moment are the challenges for analysts and investors.
The mission of this blog is to explore the problems and opportunities involved in valuation analysis.
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