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A Profitability-Valuation Framework Based on a Firm's Cash-Flows
  • Pascal PIERRE
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The traditional Profitability-Valuation framework is based on the Residual Income Model which is in fact a derivation of the Dividend Discount Model. Drawbacks of the dividend or earnings approach to valuation are well known, and practitioners in the equity investment community tend to prefer cash-flow based valuation metrics. We show that it is perfectly feasable to build a Profitability-Valuation framework based on a firm's cash-flows.