Avoiding Double-Counting Inflation in DCFs

In this episode, Andrew and Stephen get into the financial weeds to answer a great listener question from passaro94 about how inflation actually impacts a company's value. We break down the macroeconomic side of investing—explaining exactly what the Federal Reserve does, the critical differences between inflation and deflation, and how the best businesses account for these economic shifts using pricing power.

Finally, we take it a step further and explain how to practically tie inflation into your WACC (Weighted Average Cost of Capital) and DCF (Discounted Cash Flow) calculations so you can accurately value stocks no matter what the economy is doing.

In This Episode, You’ll Learn:

• What the Federal Reserve actually does and why it matters to everyday investors.

• The difference between inflation and deflation.

• How businesses use pricing power to survive (and thrive) during inflation.

• How to properly factor inflation into your Discounted Cash Flow (DCF) models.

Timestamps

00:00 - Intro & getting into the financial weeds 

04:30 - Listener Q&A: passaro94 asks about adjusting WACC for inflation 

12:15 - What does the Federal Reserve actually do? 

21:00 - Inflation vs. Deflation: What beginners need to know 

28:45 - How businesses survive inflation using pricing power 

36:20 - Tying inflation into your WACC and DCF valuation models 

43:30 - Final thoughts 

Resources Mentioned

The Value Spotlight Newsletter: ⁠https://einvestingforbeginners.com/value-spotlight-newsletter⁠/

Have questions or want your story featured? Email the show at ⁠newsletter@einvestingforbeginners.com⁠ or comment below. Your feedback shapes the podcast!

Remember, invest with a margin of safety—emphasis on the safety. Have a great week, and we’ll talk to you next time.

Timestamps are generated by artificial intelligence, and are not 100% accurate depending on the platform used for listening.

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