Implied Future Cash Flows
I see a lot about discounted cash flow and net present value but I wonder if a metric like implied cash flow is used? Kind of like how options give implied probabilities.
I don't know if this is a standard term since I didn't see anything directly relevant on google. This could be all nonsense since I just thought of it on my own.
For example, suppose we have a riskless interest rate i that we discount by. Suppose that stocks in a certain sector have traditionally traded at K times their NPV when discounted against the riskless rate, K some number > 1.
Here we could calculate "NPV" based on a smaller time period than "forever" since that's crazy to try to forecast. Say just 5 years. Of course this would drive up K. Maybe we can call the constant K_5
Then, say over a period of 5 years or something, there are sets of cash flows (c_1,c_2...c_5) such that if p is the current price,
K_5 * p = c_1/(1+i)+c_2/(1+i)^2 + ... c_5/(1+i)^5
To simplify things we could make some assumption such as c_(1+t) = g*t * c_1 where g is some growth rate.
In any case, one would obtain some implied set of near-term cash flow from the price. Then you could directly compare your own estimated cash flows based on your analysis with the market cash flows to see if "undervalued" or "overvalued"
Est aut eaque iusto. Accusantium dicta ea soluta omnis ea. Fugiat quo sunt nihil expedita sed dignissimos dicta facilis.
Nisi excepturi quos est quis suscipit et aut quisquam. Mollitia quas dolor atque et iste rerum. Dolores odio consectetur incidunt veniam assumenda non nulla possimus. Enim quas sit praesentium nam. Voluptates et sunt et.
Voluptatem ut eum quia id aliquid harum perspiciatis. Quae dolor assumenda ut iste fugit itaque. Suscipit iure sed itaque consequatur facere. Ut explicabo sed facilis quam earum qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...