7
Absolute valuation – discounted cash flow (DCF)
What topics are covered in this chapter?
Why is DCF useful?
The valuation generated by the discounted cash flow (DCF) is sometimes referred to as the company’s ‘intrinsic value’. This is useful as it can provide us with a reference point as to what the fundamental valuation of the business is – which is why Warren Buffett tends to prefer this technique:
The critical investment factor is determining the intrinsic value of abusiness and paying a fair or bargain price.1
Of course the current share price can deviate significantly in either direction from the ‘intrinsic value’. The short-term share price will ...
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