4 ms·
The valuation of a company was never based solely on its current profits.
by senordevnyc 4mo ago
The valuation of a company was never based solely on its current profits.
- ghaff 4mo agoConventional finance theory was that stock price/valuation was based on the net present value of the current/future dividend stream. That has of course largely fallen apart in practice.
- senordevnyc 4mo agoI don’t think conventional finance theory was ever to conflate stock price and valuation the way you just did there. Nor did it only include dividends in NPV calculations. And I’d argue that valuation based on NPV of future profits hasn’t fallen apart at all, it’s just become harder to estimate future profits, and the discount rate has changed.