Question

Why can accounting not directly provide us with information necessary to perform cash flow discounting-based valuations?

Why can accounting not directly provide us with information necessary to perform cash flow discounting-based valuations?

Homework Answers

Answer #1

Accounting includes all the expenses and revenue of the company from all its business segment. The expenses which are included will have both cash and non cash expenses. Since accounting includes everything while in cash flow discounting valuations only expenses which are cash related or transactions which are related to cash are included. Non cash transactions in accounting have different treatment which needs to be followed as per the accounting standard as otherwise it would lead to differences. Also in accounting we include the forecast without any discounting on it to calculate present value. Hence, accounting can not directly provide us with information necessary to perform cash flow discounting based valuations.

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