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In: Finance

I completely got lost in the descriptions for Discounted cash flow what are the major differences...

I completely got lost in the descriptions for Discounted cash flow what are the major differences between EPS and DC? Is it that one is for short-term investing and the other is for long-term investors?

Solutions

Expert Solution

Earning per share will mean that earning which is left for the equity shareholders after payment for all of the expenses related to business and debt holders so only the profits which are left out for equity shareholders will be treated as Earning per share.

Discounted cash flows will mean that all the cash flows which are accruing to the company in the future will be discounted at the present value at a discounting rate, so it will be giving the the cash flows associated with the companies in future which will be discounted at present in order to arrive at intrinsic value of the company.

Earning per share is associated with the overall profits of the company whereas discounted cash flow is overall associated with the cash flows of the company.

Earning per share can be used for short term investment because it is related to the current earning and the current price of the share whereas discounted cash flows are mostly relating to long term investing as it is discounting the futuristic cash flows at the present value in order to arrive at the intrinsic value of the company.


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