To weed out emotions from investment analysis, financial analysis is supposed to use a number of objective tools to approximate “the net present value of expected future free cash flows discounted to perpetuity”—the definition of the total market value of a company. Investors do know how to transform a perpetual flow into a “stock equivalent”—in other words, to calculate the net present value equivalent to receiving this flow forever. This is one of the easiest financial tricks available to them. Today, half a century after the emergence of the large-scale asset-management industry, the world is awash with “ways” to value assets and shares—shortcuts, long cuts, narrow passages, and hanging bridges. Investment in a financial sense should just be a replication of the real-world process of arbitrage between market value and replacement value. To decide whether a particular share is worth buying according to the real-world process, investors need more than just a schematic representation of assets, liabilities, or profits. Share prices do react continuously to a perpetual process of arbitrage between market value and replacement value. It is not because accounting-based ratios are unable to capture it that this economic process does not take place. Therefore, investors need to conduct their financial analysis so that they are in a position to measure market value and replacement value without having to build any new capacity.

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Investment, investors and financial analysis