(Start of Section)įair Value is derived from a detailed projection of a company’s future cash flows. For detail information about the Qualitative Fair Value, please click here. Past performance of a security may or may not be sustained in future and is no indication of future performance. Investments in securities are subject to market and other risks. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years.

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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