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Market earnings and cash flows

Problem:

Consider the following statement: "I don't know why anyone would ever try to value earnings. Obviously, the market knows that earnings can be manipulated and only values cash flows." Discuss in 1 paragraph.

Consider the statement that "the DCF valuation method has increased managers' focus on short-term rather than long-term performance, since the discounting process places much heavier weight on short-term cash flows than long-term ones."

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Accounting Basics: Market earnings and cash flows

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