You, with the accounts open
“The shop earns ₹1 lakh a year. It earned about that last year and the year before. Six times that is ₹6 lakh, and I can see where every rupee of it came from.”
You are pricing what the shop is doing.
Arun, looking out of the window
“The college opens across the road next year. Two thousand students walk past this counter every morning. This shop will earn ₹2 lakh, and I will still call it cheap.”
Arun is pricing what the shop will do.
Only one question is being asked
You and Arun disagree about a number, but you are asking the same question, and it is the only question in valuation: how much cash will this hand me, and when?
That is what a business is worth. Not what it cost to build, not what somebody paid last year, not what it feels like. The cash it can give whoever owns it, from today onwards.
Bharat Foods is the same question with more zeros. One crore shares at ₹500 means the market is asking ₹500 crore for the whole company. In return you get a claim on the owner cash it can produce from here on — the part paid out, and whatever value is created by the part it keeps and reinvests.
Money later is worth less than money now
Suppose Rahul's shop pays ₹1 lakh a year for ten years. That is ₹10 lakh of cash, and the shop is still not worth ₹10 lakh. It is worth less, for two ordinary reasons.
You could be using the money. A lakh in your hand today can sit in a deposit or pay a bill. A lakh arriving in year ten does nothing for you until year ten.
It might not arrive. Shops close. Roads get dug up. The college may be delayed by three years, or never built.
Shrinking future money back to what it is worth today is called discounting. Do it to every future year, add up the answers, and you have done what the frightening phrase discounted cash flow describes.
What ₹500 is actually made of
To isolate the time effect, pretend Bharat Foods can turn ₹25 a share into owner cash every year. Here are twenty such years, shrunk to today's money at 10% a year.
Twenty years of that simplified ₹25 cash proxy comes to ₹213, against a ₹500 price. Real work must also test how accounting profit becomes cash — that is Parts 11 to 14.
In this simplified model, half of ₹500 rests on growth nobody has earned yet.
The arithmetic behind that sentence
Keep Bharat Foods exactly as it is — ₹25 a share, for ever, growing not one rupee. At a 10% discount rate that endless stream is worth ₹250 a share today. Not ₹500.
So the no-growth stream explains ₹250, and the other ₹250 requires a better future. Hold the ₹25 proxy and the 10% rate fixed, run the arithmetic backwards, and the model fits at about 5% growth a year, every year, for ever.
That is a conditional calculation, not a fact about what investors believe. Bharat Foods sells snacks in a competitive market. Could owner cash grow like that for that long? That is a question about snacks, shelves and factories — and it is answerable, which is the point of asking it this way.
Why a rising price proves nothing on its own
Arun's ₹11 lakh is a bet on a future, not a payment for a present. If the college opens three years late, he has overpaid for a perfectly good shop — the shop did nothing wrong, and his return is still poor.
The same holds at Bharat Foods' scale. A rising price does not prove the business improved, and a falling one does not prove it broke. Often the only thing that moved was what people assumed about the years nobody can see yet.
Which is why the next two lessons are needed before the number is any use. One separates what you observed from what you estimated. The other admits how much the estimate moves when a single assumption moves.