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by hsitz
2880 days ago
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> 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. |
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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.