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How much is a share of stock really worth?
Not just in terms of analysts' opinions, but logically, based on facts?
In theory, the answer is simple: a company is worth the total amount of cash it will generate over its lifetime, discounted to its present value.
(And don't panic if you don't really understand that last sentence, because the next page explains it. You do not need any background to read this article.)
This article presents a simple discounted cash flows calculator, along with some popular variations and shortcuts, to make stock valuation make sense.
But before we get started....
When you use any kind of value formula, it's a good idea to remember Warren Buffett's advice, that "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price".
The idea is to find a company whose prospects you really believe in, and then use a valuation technique as a reality check, to make sure the purchase price is acceptable.
And try to make your valuation estimates realistic and conservative: you're trying to protect yourself from overpaying, not justify your surplus of enthusiasm.
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