Is Cash Flow King in Valuations

摘要: Contrary to the common perception that operating cash flows are better than accounting earnings at explaining equity valuations, recent studies suggest valuations derived from industry multiples based on reported closer traded prices those flows. The question addressed in article is whether balance tilts favor of when following considered: (1) forecasts rather numbers, (2) dividends flows, (3) individual industries all combined, and (4) companies non-U.S. markets. In cases studied, dominated dividends. ndustry used often practice, both provide stand-alone “quick dirty” anchor more-complex discounted flow valuations. To obtain a company valuation, one simply multiplies value driver (such as earnings) for by corresponding multiple, which ratio stock price group comparable companies. Choices drivers include various measures flow, book value, earnings, revenues, but far most commonly used. study here, we compared valuation performance with two flow— dividends—for large sample drawn 10 national “Valuation performance” our does not refer picking mispriced stocks. 1 We focused