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Everything Is a DCF Model
 
Consilient Observer
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August 03, 2021

Everything Is a DCF Model

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August 03, 2021

Everything Is a DCF Model


Consilient Observer

Everything Is a DCF Model

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August 03, 2021

 
 

A Mantra for Valuing Cash-Generating Assets

  • We suggest the mantra “everything is a DCF model.” Whenever investors value a stake in a cash-generating asset, they should recognize they are using a discounted cash flow (DCF) model.
  • This suggests a mindset that is very different from that of a speculator, who buys a stock in anticipation that it will go up without reference to its value.
  • The topic deserves attention because many market participants don’t think DCF models are relevant, and many use heuristics for value without recognizing the purpose and limitations of the shorthands.
  • The intrinsic value, determined by the present value of future cash flows, attracts the price like a magnetic force. This means it is useful for investors to keep in mind the value drivers of a discounted cash flow model.
 
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