Also called Rates and valuation, Why big companies look expensive
Why interest rates move fair value
A higher safe interest rate makes future cash worth less today, so a cash-flow valuation lowers companies whose price rests on years of growth. With Treasuries near 5%, most of the biggest names read below their price.
A fuller explanation of this one is still being written. The definition above is the short answer.
See also
- WACC — Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.
- Discount factor — How much a dollar arriving in year t is worth today, adjusted to mid-year because cash arrives through the year rather than all on 31 December.
- Terminal value — Everything the business is worth beyond the projection horizon, set by Gordon growth or an exit multiple and then discounted back. It is usually the majority of the answer.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
