Value investing: a companies value.
Hi, straight to it.
A company is worth all of the future cash flows that it will produce in the future discounted back to the present date. Simply put the money that the business is capable of producing in the future and its worth today as the price in which you would pay to purchase the business. Value investing is based upon buying companies selling below what their future cash flows would demonstrate they are worth.
Value investors look to purchase companies which are selling at attractive prices relative to what they are priced at by the market. The market tends to mis price many companies and the market tends to over react to the way in which businesses are performing. Due to news and other external mediums which cause the market to shift.
Purchasing companies based upon pure logic: the businesses value can also be determined by the way in which it uses it’s assets to create revenue and profit. If a business is growing and it’s assets are proportionally creating more revenue, this is a good indicator of a good company. In addition to this looking at the return on capital and the businesses earnings relative to its other metrics can allow you to find value issues.
Value investing is about finding companies which are selling at attractive prices, the margin of safety is the difference between the price of an asset and its intrinsic value. The greater the gap between the businesses price and the intrinsic value, the greater the margin of safety- if you buy a good company at a low enough price.
You can’t go wrong…
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Thank you for reading and have a fantastic week.
Regards,
Jagdip
