What is firm-foundation theory? How is it different from castle-in-the-air theory? How do they differ and which is the best stock valuation method? There are two primary stock valuation methods. Firm-foundation theory states that assets have an “intrinsic value” based on the value of current dividends and estimated potential in the future. The idea here is that the stock will always regress to the intrinsic value. The castle-in-the-air theory has a different approach, stating that a stock is worth what people are prepared to pay for it. Keep reading for an in-depth look at firm-foundation theory and castle-in-the-air theory.
Firm-Foundation Theory vs Castle-in-the-Air Theory
