Critical Look at using DCF for Valuations

Professor Damodaran has written a ton of articles about Discounted Cash Flow (DCF) analysis over the years.  I don’t think another website has as much information about valuation and DCF as on his blog – so it is a wonderful resource to visit and use for investors.  His latest blog post on DCF which defends the use of DCF as a valuation technique is a good topic.  Many investors have discredited the use of the DCF technique and Damodaran tries to initially cover some of these myths and focus on the critical use of DCF in valuing companies.  It appears that he will cover, in detail, the myths of DCF over the upcoming year! It is my opinion that a DCF analysis, in theory, is the right way to value a business or asset.  An asset is only valuable if it will give a return to an investor.  An asset has a defined life, and the total amount of cash returned to an investor over the life of an asset, discounted for risk and time value of money is the final value of that asset.  The theory is solid, as is the basic DCF calculation process.  This simple chart is…

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The Ultimate Guide to Stock Valuation Review

Jae Jun over at Old School Value has just released a free e-book on stock valuation methods.  The name of the e-book is The Ultimate Guide to Stock Valuation and it covers 8 different techniques to calculate the value of a particular stock.  The e-book is a great supplement to the Stock Analyzer product that is available for sale at Old School Value.  By the way, I’m a user of the Stock Analyzer which I purchased a couple of years ago. 8 Valuation Techniques covered in the e-book: Net Net Working Capital and Net Current Asset Value Balance Sheet/Tangible asset valuation Benjamin Graham Valuation Formula Earnings and Growth stock valuation Discounted Cash Flow (DCF) Cash Flow Valuation Reverse DCF Cash flow Valuation of market expectations Katsenelson Absolute PE Model Fundamentals based multiples EBIT Multiple Valuation Multiples Method Absolute Reproduction Value Balance Sheet Valuation Earnings Power Value (EPV) Adjusted Earnings Valuation Each valuation technique is covered with an explanation of the method, along with constraints of the method.  Each technique has at least one example of how to apply the technique.   The e-book is targeted towards a new or beginner investor that wants to solidify some of the basic methods of…

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