The Average Life Span of Companies is Shorter. This Affects Business Valuation
By Investment Moats • November 14, 2020
If you are trying to value a company, the lifespan of a company is rather important.
If most of the value of the company lies in the future cash flow or the growth in the future cash flow that the company can produce, then the growth rate and how long the company will survive is very important.
However, if the majority of the value of the company is based on the cash flow today and the next few years, then the future growth rate is less important. If the company does not survive for a long time, that is also OK.
When you try to buy a business below its intrinisc value, or the true valuation of the company, you are trying to have some form of margin of safety.
The Benjamin Graham kind of valuation or the Net-Net kind of way of investing, prioritizes the current cash flow and assets over the future.
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