Can We Rely on Accounting?

Determining firm value relies on estimating items such as cash flows and discount rates. Much of this stems from basic accounting statements. However, as a recent WSJ article  notes, the backward focus of accounting is often unreliable in predicting future values necessary for valuation.

Interest Rates and Intrinsic Value

In theory, the intrinsic value of a financial asset is simply the present value (PV) of its future cash flows. As in any PV calculation, the discount rate is determined by the market interest rate plus a risk premium. With lower interest rates, all else equal, PV is higher. Thus, if market interest rates rise, asset values (and associated market prices) could be set for a fall. See article here, WSJ.