6
The outlook
What topics are covered in this chapter?
- Why outlook drives valuation (and share prices!)
- What are profits and earnings going to do?
- Management’s view of the future
- Operational gearing
- Forecasting operating margins
- Sanity checks
- Summary
- Checklist
Why outlook drives valuation (and share prices!)
Investment is all about the future. When valuing any asset it is the future cash flows that determine its worth. Therefore the outlook is a crucial component of valuation. We have seen in Chapter 2 how looking at the macroeconomic factors and sector characteristics provides a useful ‘top-down’ framework for predicting what may happen. We can then attempt to predict what might happen to industry volumes, prices and costs.
A key aspect ...
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