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Berkshire Hathaway Inc. Message Board

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  • astral_tsar astral_tsar Dec 11, 2003 5:14 PM Flag

    PV of Future Cash Flow

    Yeah, swusc's point is extremely important & hopefully Hagstrom mentions this as well. All this stuff is jam-packed with land mines.

    The current 30 year rate would give a P/E of 20x for a company with steady earnings. In reality nobody wants to pay that much for anything but treasuries, because they feel that the payments may not actually arrive. So folks talk about a P/E of 10x or 14x or something for companies whose earnings might reasonably be expected to continue without growing or shrinking.

    To help make all this more incomprehensible, people also use the phrase "discounted cash flow analysis" to mean "we ran lots of spreadsheets before we picked a PE".

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