[latexpage] All formal education on security valuation talks about discounted cash flow (DCF) valuation. All of them will also mention relative valuation - although they will not necessarily hold them up in the same high regard as DCF valuation. Rightly so. Relative valuations are basically shorthand rules that apparently substitute for DCF. However, there is one other way to break down the valuation question. That is to break down valuation into a steady-state value and future value creation. This is also an extremely intuitive way to look at it. And in some ways, it segregates and highlights the important concerns around valuation into clean components. Here's the equation.
An alternative way to look at valuation
An alternative way to look at valuation
An alternative way to look at valuation
[latexpage] All formal education on security valuation talks about discounted cash flow (DCF) valuation. All of them will also mention relative valuation - although they will not necessarily hold them up in the same high regard as DCF valuation. Rightly so. Relative valuations are basically shorthand rules that apparently substitute for DCF. However, there is one other way to break down the valuation question. That is to break down valuation into a steady-state value and future value creation. This is also an extremely intuitive way to look at it. And in some ways, it segregates and highlights the important concerns around valuation into clean components. Here's the equation.