Absolute Value


DEFINITION of 'Absolute Value'

A business valuation method that uses discounted cash flow analysis to determine a company's financial worth. The absolute value method differs from the relative value models that examine what a company is worth compared to its competitors. Absolute value models try to determine a company's intrinsic worth based on its projected cash flows.

BREAKING DOWN 'Absolute Value'

In addition to looking at ratios such as price to earnings and price to book value, value investors like to calculate what an entire business is worth when they are considering whether to buy a particular stock. Discounted cash flow models are one way to determine this worth. They estimate a company's future free cash flows, then discount that value to the present to determine an absolute value for the company. By comparing what a company's share price should be given its absolute value to the price the stock is actually trading it, investors can determine if a stock is currently under or overvalued.

  1. Discounted Cash Flow (DCF)

    Discounted cash flow (DCF) is a valuation method used to estimate ...
  2. Perceived Value

    The worth that a product or service has in the mind of the consumer. ...
  3. Discounted After-Tax Cash Flow

    An approach to valuing an investment that looks at the amount ...
  4. Intrinsic Value

    Intrinsic value is the actual value of a company or an asset ...
  5. Operating Cash Flow - OCF

    Operating Cash Flow (or OCF) is a measure of the amount of cash ...
  6. Extrinsic Value

    The difference between an option's market price and its intrinsic ...
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