**This is not investment advice, there is no implication of any guarantee. All investment is risky and you should take advice from actual advisors. EDUCATION ONLY.**

## Definition

A simple calculation to derive the value of a business, in simple terms.

## Takeaway

The fundamental formula in determining the value of a company is fairly simple. While simple calculations make life easy, they also tend to not be very useful. If all it took to valuate a company was a simple formula, there would be little point to investing - the market would be perfect. Instead we need to look at certain formulas as a tool in a belt - they won’t show you the whole picture, but they are significant if you build on them.

## Formula

- Numerator > Denominator = Company is worth more to you.

## Python

### Company Value - Simple

```
def company_value(cashflow, DR, CFGR):
return cashflow/(DR-CFGR)
print(company_value(100,10,4))
```

### Company Value - Complex

Compounding exists. Cash flows are not stable year to year until a company matures. We may want to understand the value of a company today, based on what it’s worth in the future. Let’s say at the point of investment we expect the discount rate on a company to be 10% with cash flow of $100. Let’s say at the end we expect our discount rate to be 8%. We want to evaluate five periods.

Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |

CF Growth | 10% | 8% | 6% | 4% | |

CF Annual | $100 |

```
!pip install numpy_financial
import numpy_financial as npf
cfgrowth = [0,.10,.08,.06,.04]
cfstart = 100
def cashflow_table(growth, start):
annual = []
n = 0
for x in cfgrowth:
n += 1
if x == 0:
annual.append(start)
else:
annual.append(annual[n-2] * growth[n-1] + annual[n-2])
return annual
print(cashflow_table(cfgrowth,cfstart))
npvcashflows = npf.npv(.1, cashflow_table(cfgrowth,cfstart))
#[100, 110.0, 118.8, 125.928, 130.96511999999998]
# 482.2443275732531
```

As you can see I “cheat” by using the numpy_financial.npv function rather than programming the function myself.