Discounted Cash Flow, a feature on GuruFocus’ new Valuations Tab
, is a more encompassing method of valuing businesses than isolated ratios because it takes into account book value, current free cash flow, business growth rate and terminal value. The model arrives at an intrinsic value of a business that includes balance sheet value, future business earnings and earnings growth.
Calculating the entire value of the business in this way gives a number that is comparable to the stock price. For instance, if a company has a DCF value of $10 and the stock is trading for $15, the stock is undervalued. Continue Reading »