"Expected long-term cash flows, discounted by the cost of capital—not reported earnings—determine stock prices." expectationsinvesting.com/pdf/earnings.p…
Doing the cash flow analysis requires actual work, so people focus on the earnings numbers that must be submitted in SEC compliance documents.
Doing the cash flow analysis requires actual work, so people focus on the earnings numbers that must be submitted in SEC compliance documents.
"With discounted cash flow models, the value is sensitive to the inputs. But the assumptions underlying the inputs are explicit. You can compare them to base rates, discuss them, and debate them. With multiples, those assumptions are buried." valuewalk.com/wp-content/upl…
Many people love to use ratios since they hate doing work. The idea that there is advantage in using ratios, especially when they are that easy to find and use, is a triumph of hope over experience. Salespeople do use ratios effectively to tell stories to charge fees though!
