Why Companies Crushing Cash Flow Today Could Suddenly Crash Tomorrow – The 10-Year Profit Trap You Can’t Afford to Ignore!
You should see my eyes roll as I see those messages.
The formula that we are taught to value a company is the discounted cash flow model above. We discount the cash flow that a company can earn in the future today back with a discount hurdle rate (r).
The cash flow (CF) can grow at a certain growth rate (g). Your stock can grows at a fast pace, or growth rate can be negative as well.
It reminds us that.. fundamentally what we are paying for today is the aggregate cash flow in the future.
How would you feel if you own a bunch of companies whose cash flows without growth is actually very low, relative to what you are paying today?
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