What is compensation theorem?
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Answer / Vivek Khodlan
The Compensation Theorem is a concept in accounting that states that changes in the market value of a company can be attributed to either a change in its cash flows or a change in the discount rate used to calculate the present value of those cash flows. It demonstrates that the intrinsic value of a company's stock price can be explained by both its future expected cash flows and the risk level associated with those cash flows.
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