A Logical Umbrella for Firm Evaluation: The Fundamental Relation [Un Ombrello Logico Per La Valutazione Di Azienda: La Relazione Fondamentale]

This paper analyzes the relations among different concepts such as earnings, profit, interest, rate, consumption, dividend, installment, cash flow, capital. It aims atembracing these notions in a unique conceptual "umbrella" , consisting of five perspectives: (1) accounting, (2) economic theory, (3) theory of finance, (4) loan theory, (5) financial mathematics. These notions and these domains constitute a seeming mishmash: in fact, the hub of the umbrella is given by a unique fundamental relation, shared by all five perspectives and whose ingredients are capital, profit, and cash flow. On the basis of the fundamental relation, market value and book value of a firm are easily obtained.