Present value of cash flows

The stock market has taken losses the last couple of days in the face of political uncertainty. It’s important to keep in mind that market moves within any given day are based on rapid changes in market sentiment. The measure of how any asset performs over time is it’s ability to generate and increase cash flow. In the case of a stock, the current price is each future cash flow discounted to the present at the required rate of return. This rate is determined by the market as a whole. The reason for discounting to the present value is that a dollar in the present is worth more than one in the future, at the very least due to the fact that money today can be put to work to earn a return on capital.

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