I recently realized that the value of a firm's stock is simply equal to the Present Value of its future profit. If you assume a constant rate of profit and a risk and inflation weighted interest rate and a time horizon of say 30 years, you get some pretty sane results. Its the world's simplest formula:
PV = Profit(1-(1+r)^-n) /r.
Does anyone have any experience with this? Obviously you can make it a lot more complicated but maybe we shouldn't...
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