Connect with us

Hi, what are you looking for?


Unveiling the Modern Finance Illusion: Breaking Down Valuations, Returns and Distributions – Part 11

Underlying Valuations

The world of modern finance heavily relies on valuations, which are essentially assessed worth of assets, whether they are stocks, bonds, or a physical asset like real estate. The standard methods of valuation, such as Discounted Cash Flow (DCF), Price/Earnings ratio (P/E), or Net Asset Value (NAV), are widely accepted in the financial world. However, it’s important to recognize that these valuation methods are not foolproof, and their reliability is highly dependent on the assumptions made during their computations.

The DCF method, for instance, relies on estimating the future cash flows of an asset and discounting them to their present value. This method can become problematic if the projected cash flows are overly optimistic, and this often results in inflated valuations. Similarly, the P/E ratio method becomes unreliable when a company’s earnings are inconsistent. A ratio that looks attractive on the surface may drastically change if the earnings turn out to be volatile or trend downwards.

Falsification of Returns

Returns, the gains or losses made on an investment over a certain period, shape decisions within the finance industry. Investments are primarily made based on expected returns and their associated risks. However, investors often fall for the hoax of exaggerated returns.

In the fast-paced, competitive world of finance, it is not uncommon for firms to manipulate data to draw the attention of potential investors. This risk-return manipulation extends to all types of asset classes, including bonds, stocks, real estate, and more. This hoax can be innocently veiled behind accounting procedures or sophisticated financial engineering.

Often, historical data of returns is used to extrapolate the future performance of the investment. However, this projection can mislead investors as past performance is never a guarantee of future behavior. Notably, during successfully manipulated financial markets, periods of economic boom can see inflated returns that serve to attract investors who are then left holding the losses when corrections or crashes occur.

Distributions and Their Disguises

The distribution of returns or dividends to investors is another area susceptible to manipulation and misinterpretation. A classic trick utilized by companies is forming a rosy picture by paying high dividends to their shareholders. By paying out large dividends, companies give an illusion of great performance and robust cash flows, whereas the underlying profitability of the business may be weak, or worse, non-existent.

Another strategy linked to distributions involves share buyback schemes. Here, a company buys back its own shares to reduce the number of outstanding shares, thereby increasing

Enter Your Information Below To Receive Latest News, And Articles.

    Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

    You May Also Like


    Getchell Gold Corp, a junior miner exploring gold mining in Nevada, has just initiated trading on the Frankfurt Exchange under the symbol GGA1. Getchell...

    Latest News

    France has announced the release of François Santoni, a French official that had been held by Niger security forces since July 7. The French...


    With government issues, i.e. bonds, it is essential to consider the “long term trend” in order to get the most benefit and create wealth...


    Exploration results from the latest Bigfoot Drilling Program at the Tatiggaq Project in Canada’s Thelon Basin, Yukon-Northwest Territories region have demonstrated that the uranium...

    Disclaimer:, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2023