Absolute Equity Valuation, Part I: An Overview

Present Value of Cash FlowsIn his seminal 1938 work, “The Theory of Investment Value,” John Burr Williams expounded on his theory that a common stock‚Äôs intrinsic value equals the present value of all its future dividends. Since then, considerable advances have been made in the field of security analysis and valuation. But the basic principals have remained the same.

This article is the first in a series comprising a basic overview of absolute security valuation as it applies to the common equity of domestic public companies. Our topics will include popular cash flow definitions, their formulas, underlying assumptions, applications, and multistage model equations. A detailed discussion of determining discount rates and growth rates is beyond the scope of this particular series.

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Merging Fundamental and Technical Analysis

Merging fundamental and technical analysis is by no means a new concept. But it is an important one to which I have devoted some study. Though the underlying assumptions may seem contradictory, I believe these two disciplines are complimentary. Learning to use both methods together has added more depth and perspective to my understanding of the financial markets.

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