CHAPTER 4
Valuation Based on Cash Flow
“Happiness is positive cash flow.”
—Frederick R. Adler, venture capitalist
IN VALUING A company, an investor wants to know what the company owns, owes, and earns. That’s why this book has discussed assets/liabilities and earnings in such depth. But another way to analyze the value of a company—some say the only reliable way—is to focus on the movement of its cash.
Like the balance sheet and income statement, the cash flow statement gives clues to company value. But the cash flow statement tells only part of the cash story. The real story is in future cash flow, discounted back to the present. Future cash flow is generally considered an economic measure of value, as opposed to the more bounded accounting ...
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