Discount model part 4: Profit
This article about using the profits of a company for calculating the company value is the final part in this series. Part 1 discusses the general principles and calculation of the discount model. Part 2 and 3 explain the calculation of the company value with the discount model using the cash flow and dividend.
Investors cash flow
Many investors use the cash flow of a company as an important indicator. Investors find a company with an increasing cash flow worth investing in. When the company has a negative or declining cash flow, investors will think again about investing in such a company.
A positive cash flow means that the company can continue their current operations in the future. On the other hand, a company that will spend more money than it receives, the company will not be able to pay their bills in the future. So the cash flow determines the continuity of a company.
Discount model part 3: Dividends
In this part of the article series about the discount model, I will discuss the dividends discount model (or DDM). In previous articles in this series, the basis and calculation of the discount model and the cash flow discount model are described.
In this article, I write about the pros and cons of the use of the dividends when calculating the discount of shares of a company. Besides that, I also explain the specific principles and attention points for the dividends discount model. I will also discuss the origin of the discount models (not specific the dividends discount model) and the investors that use the discount model.
For this website, calculation tools are developed which should make investment decisions. One example of such a calculation tool is the calculation of the theoretical value of a stock. The calculations are mostly based on extrapolations of historical data.
The discount model is the first calculation module which is available. This model is used by successful investors like Warren Buffett to calculate the price of a stock. Because different investors have different perceptions about the calculation of a stock price, this tool has been developed as flexible as possible.
For an investor, several tools are available to make investment decisions easier. Many of these investment tools are very expensive, but there are also free tools available. The functions of these tools differ from collecting and storing daily stock quotes to making technical analysis. On this website various investment tools and their functionalities are discussed in articles.
To select the right share, it is important to have information about the companies you want to invest in. Besides standard company information, the financial data needs to be clear. This information about individual companies can be found in the company menu, but it is also possible to make a comparison between different companies. This makes it possible to compare financial data of multiple companies in the same industry, for example.
In the download section of this website, historical share prices can be downloaded. Also some supporting files of the discussed investment tools are available.