If I could just add to Madamswer usual enlightened commentary....

If I could just add to Madamswer usual enlightened commentary.

Hasnainj, fundamentally, what a business (or any asset) is worth is the sum of all the cash that you might expect to extract from it, from now until the end of time, discounted at an appropriate rate (ie your desired, and rational, rate of return). Or, said differently, the present value of all that future cash.

As you have no crystal ball (well no one I know has!), you have to rely on an intelligent, cautious judgement. Thinking of all this future cashflows as a multiple of the current earnings, the PE ratio, is just a shorthand way of thinking about this.

The confidence with which you can make these judgements, or the multiple you are willing to pay, will be driven by how well you understand the factors that Madamswer has stated. Said differently, the less confidence you have, the greater a margin of safety you will want.

Ultimately, it's a question of learning. Though generally I would not recommend HC as a great place to do this (though clearly some contributors here are worth listening to). My recommendation is that you learn the fundamentals from the greats. I can recommend some books if you like.

Just don't expect answers to rapid riches, and don't expect revolutionary insights over night.