[sonnyblarney]

Not really.

The 'valuation' of a company is basically the present value of all it's estimated future cash flows (edit: by this I mean profit).

So think of Apple like a 'cash machine' - and it spits out profit to the bank account.

Well - the 'valuation' is just how much we think will be in that bank account.

The inherent problem with this is 'seeing the future' - both in terms of predicting future cash flows way out ... that's obviously hard, but the second part ... is the fact that the value of 'future cash flows' to you might be different than it is to someone else!

Basically, the way we calculate the 'present value' of those future cash flows is by discounting those values by some amount - $100 in 100 years is worth less than $100 tomorrow.

But what 'discount rate' do you use? That's another hard question. Typically, it's the 'risk free rate' i.e. the rate of return you can get on your money by parking it somewhere and doing nothing.

Another term for that is 'cost of capital'. Everyone's 'cost of capital' is different.

So when everyone takes there estimates of 'future Apple cash flows' and then applies their specific 'discount rate' - we then have a balance of supply and demand for their shares and voila - a 'market cap'.

Also we should point out that this is private wealth - and that massive surpluses in one part of the value chain isn't necessarily healthy for you, for me, for anyone else, or 'the economy'.

For example - what if Apple had more competition? Well, then we might be getting the very same great Apple products for 20% less. Apple might be making 'very little profit' but nevertheless be providing you and I with vast consumer surpluses.

In a funny way - every dime that a corporation makes in 'profit' is a dime that you and I (as consumers) are losing out on in terms of consumer surplus.

[hsitz]

> The 'valuation' of a company is basically the present value of all it's estimated future cash flows.

?? A company could have huge future cash flows yet operate with zero profit, or with a loss.

Maybe you're referring to the Dividend Discount Model of valuation. In that case the only flows that are discounted to present value are the future dividends paid to shareholders, which are tiny subset of a company's future cash flows. https://en.wikipedia.org/wiki/Dividend_discount_model

There's so much loose and confused use of terminology in threads like this generally, that I tend to think they're unhelpful to the majority of people who read them.

[sonnyblarney]

Future cash flows to be interpreted as 'free cash flows' i.e. profit.

What I'm articulating is not complex or obscure or even really very theoretical - it's literally the most basic idea for valuation, though admittedly the term 'cash flow' might be misleading in the context of accounting.

'The company is worth how much money it will eventually put in the bank i.e. how much profit it accumulates'.

That's it.

Dividends are a separate thing and technically have no effect.

If a company pays you a $1 dividend, then you have $1. If a company keeps that $1 for you in it's bank account ... well, you have ownership of that $1. So it's a matter of accounting, not of valuation. Pragmatically, there are differences but theoretically dividends don't matter.