It's the weekend!
Grab a cup of coffee, in this thread I will explain
1. What drives valuation of a company?
2. Why some companies are valued at high multiples while others aren't?
3. What you should be looking for while buying a business?
Lets dive right in.
Not so long ago, Maruti released an ad campaign - 'Kitna Deti Hai'? (What's the mileage?)
Here is one of the ad's from the
The ad was on point - Indians before buying a car or any vehicle obsess over the mileage the most among all the other specifications.
We as a society are very value conscious.
Nobody has to teach us to drive a good bargain.
The logic for obsessing over mileage also checks out.
If a vehicle gives good mileage then over time as owners of the vehicle you will end up spending less on it in fuel and other added costs.
This ability to gauge long term value before buying something is magically lost when we enter stock market.
Here too you should be asking your stocks - 'Kitna deta hai'?
This time instead of obsessing over mileage, you should be obsessing over cash flows.
