What data most reliably indicate value

While all investors agree that intrinsic worth is the present value of cash that an asset generates for its owners, serious disagreement arises concerning the factors used to estimate cash flows and the relevant discount rate.

Debate concerning cash flows focuses on what data most reliably indicate this value.

Cash flows are picture of the future, and gauging the future can only be done by drawing on the past.

Historical indicators

Which historical indicators are the best gauges of future performance?

Candidates include:

• historical cash flows themselves,
• recent earning history, and
• existing asset and liability levels.

Even among prominent value investors, emphasis varies concerning which gauges are best suited for valuation exercises.

All agree that in order of importance, analysis must focus on

• the balance sheet,
• the income statement, and
• the cash flow statement.

Also read:

Valuation

1. Value Measurements

2. Hunting for good investment prospects

3. What data most reliably indicate value