Growth in the Real Economy
Every business is affected by the state of the economy, although the magnitude of the effect may vary across businesses. This section looks at how the growth in the real economy affects inputs into the valuation of individual companies. It also goes into some history on real economic growth.
Why Does Real Economic Growth Matter?
When valuing companies, we have to estimate growth in revenues, income, and cash flows over time. While we tend to look at the company’s specific prospects while making these estimates, a company’s operating numbers are influenced by the state of the economy in which the company operates. Put more simply, the revenues and earnings numbers look much better if the economy is doing well than ...