![]() ![]() Because we are modeling free cash flow to the firm-representing cash available to provide a return to all capital providers-we discount future cash flows using the weighted average of the costs of equity, debt, and preferred stock (and any other funding sources), using expected future proportionate long-term, market-value weights. Combining analysts’ financial forecasts with the firm’s economic moat helps us assess how long returns on invested capital are likely to exceed the firm’s cost of capital. ![]() Scenario analysis, in-depth competitive advantage analysis, and a variety of other analytical tools are used to augment the discounted cash flow process. Analysts create custom industry and company assumptions to feed income statement, balance sheet, and capital investment assumptions into a proprietary discounted cash flow modeling template. Fair Value is derived from a detailed projection of a company’s future cash flows.
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