Valuation methods are in the eye of the beholder

By Sam Arcand

As an active manager focused on generating risk-reward outcomes better than the overall market, we at Mint believe that investors need to keep their attention on value and try to ignore what prices are doing. To help investors maintain that focus we wanted to share some insight on a common tool for determining value: discounted cash flow (DCF) valuations.

In short, DCF valuation models are based on estimates of the business’ future cash flows, expressed in terms of today’s dollars using an estimate of business risk and the value of having money today vs. having it in the future. ² While there is much to say and cases to be made for using other valuation methodologies such as price multiples in certain scenarios,³ in this article we’ll focus on DCF models.

We believe that DCFs have many advantages for determining value including that: