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Macro Matters: The Real Economy

Companies operate in a larger economy, sometimes just domestic and often global, and the assumptions we make about macroeconomic variables affect the valuations of all companies. This chapter begins by looking at how changes in the real economy, inflation, and exchange rates affect valuation. It also looks at the historical behavior of each of these variables. With each of these variables, we also examine how analysts deal (or avoid dealing) with them, in the course of valuing companies. They often make implicit assumptions about growth and inflation that might be unrealistic or explicit assumptions that are internally inconsistent. We evaluate whether we should be building in views on the macroeconomic variables ...

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