Intro to valuing companies

April 21, 2024

Most beginner investors start their investment journey by picking stocks based on news articles, YouTube videos or because they use the product the company makes this is also how I started my investment journey.

A more prudent way to view shares is to consider it as fractional ownership of a business. This implies that you need to have an idea of what the business might be worth and to hopefully buy shares when the stock price is below business value. 

The most commonly accepted method to value a business is the discounted cash flow (DCF) model. To use this model you need to have a cash flow metric, a discount rate, a growth rate, a stable growth rate and the time period of above average growth.

If you are interested in practical examples of actual company valuations, check out Scott's Stock Due Diligence YouTube channel. In the link below he goes through the process of valuing Carnival Cruise.


Related Tags:
1 min read
Share this article:

Related Articles

All articles