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Chapter 6. In Search of Excellence: Are ... > Theoretical Roots: Building Quality ...

Theoretical Roots: Building Quality into Value

Companies with good management and superior products should have higher values than companies without these attributes. There are few who would take exception to this statement. In fact, most valuation approaches incorporate these effects into the inputs, and the resulting value reflects these inputs.

Inputs in a DCF Valuation

The value of any firm is a function of the cash flows generated by that firm from its existing investments, the expected growth in these cash flows and the cost of coming up with the capital needed for the investments. There are several places in valuation where you get to reward companies that have good managers and that have made good investment choices:


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