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I'm a layman when it comes to all this. But isn't it true that, when investors think about projected earnings, they are often implicitly thinking in terms of p
by davesque 5y ago
I'm a layman when it comes to all this. But isn't it true that, when investors think about projected earnings, they are often implicitly thinking in terms of projected value? So when we say that "Growth" company will make $200 million/year in 10 years, isn't that statement already calibrated in terms of how valuable we think $200 million is today? I would expect that any business strategist worth their salt would account for inflation in their projections. If anything, it's the variation in inflation that seems like the risk factor. That could also be accounted for, but only to some degree of confidence.
- dragontamer 5y agoYou are right that I've oversimplified things, but you are wrong about the effects of my oversimplification. What analysis study is the price of factories and associated costs. A growth company (like Rivian) is buying new factories and on the path to make 200,000 trucks / year. There are discussions about whether or not that will happen, but you can see that the price of those trucks (and the factory equipment to make those trucks) is going to vary by inflation. > I would expect that any business strategist worth their salt would account for inflation in their projections Yes, they do. But when expected inflation __changes__, those effects are calculated to cause a change in prices today. The price of the old factories don't change, they were already bought long ago, and are at worst in the form of a bond (ie: based off of old money from 2014 or whenever the bank gave them that money). The price of future factories goes up.