Absolute Value

Dictionary Says

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.
Investopedia Says

Investopedia explains '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.

Articles Of Interest

  1. DCF Valuation: The Stock Market Sanity Check

    Calculate whether the market is paying too much for a particular stock.
  2. Using DCF In Biotech Valuation

    Valuing firms in this sector can seem like a black art, but there is a systematic way to pin a price on potential.
  3. How To Choose The Best Stock Valuation Method

    Don't be overwhelmed by the many valuation techniques out there - knowing a few characteristics about a company will help you pick the best one.
  4. Top 3 Pitfalls Of Discounted Cash Flow Analysis

    The DCF method can be difficult to apply to real-life valuations. Find out where it comes up short.
  5. Taking Stock Of Discounted Cash Flow

    Learn how and why investors are using cash flow-based analysis to make judgments about company performance.
  6. 6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.
  7. Warren Buffett: How He Does It

    We look at the Sage of Omaha's methodology for evaluating value stocks.
  8. Investing With A Purpose

    Your reasons for investing are bound to change as you go through the ups and downs of life. Setting goals is the first step in determining which investment vehicles are right for you.
  9. Equity Valuation: The Comparables Approach

    The main purpose of equity valuation is to estimate a value for a firm or security. There are three primary equity valuation models: the discounted cash flow (DCF), cost and comparable approaches. ...
  10. Weighted Average Cost Of Capital (WACC)

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality
comments powered by Disqus
Marketplace
Hot Definitions
  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...
  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...
  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.
  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.
  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.
  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center