The discounted cash flow method works fine for bonds but not for businesses, projects, or stocks because it is untestable, claims a new paper. “While bonds can be viewed as examples of DCF pricing, this depends on their prices often being observable and their ‘expected’ cash flows typically being bounded above by their promised cash flows,” writes the paper’s author, J.B. Heaton (One Hat Research LLC). “For capital projects, businesses, and common stocks, there is simply no way to determine whether a DCF valuation is a good representation of the causal mechanisms behind market values.” The paper, “The DCF Valuation Methodology Is Untestable,” seems to relate price to value, which valuation analysts know are two different concepts.