950:, substantial costs are often incurred at the start of the first year – and with certainty – and these should then be modelled separately from other cash flows, and not discounted at all. (See comment in example.) Forecasted ongoing costs, and capital requirements, can be proxied on a similar company, or industry averages; analogous to the "common-sized" approach mentioned; often these are based on management's assumptions re
414:
1468:" the stock price; i.e. to "figure out how much cash flow the company would be expected to make to generate its current valuation... depending on the plausibility of the cash flows, decide whether the stock is worth its going price." More extensively, using a DCF model, investors can "estimat the expectations embedded in a company's stock price.... then assess the likelihood of expectations revisions."
1033:. With the cost of capital correctly and correspondingly adjusted, the valuation should yield the same result, for standard cases. These approaches may be considered more appropriate for firms with negative free cash flow several years out, but which are expected to generate positive cash flow thereafter. Further, these may be less sensitive to terminal value. See
403:
1495:. For an M&A valuation, the DCF may be one of the several results combined so as to determine the value of the deal; note that for early stage companies, however, the DCF will typically not be included in the "valuation arsenal", given their low profitability and higher reliance on revenue growth.
1188:
Where the forecast is yearly, an adjustment is sometimes made: although annual cash flows are discounted, it is not true that the entire cash flow comes in at the year end; rather, cash will flow in over the full year. To account for this, a "mid-year adjustment" is applied via the discount rate (and
957:
For corporate finance projects, cash flows should be estimated incrementally, i.e. the analysis should only consider cash flows that could change if the proposed investment is implemented. (This principle is generally correct, and applies to all (equity) investments, not just to corporate finance; in
1352:. This assessment is especially useful when the terminal value is estimated using the perpetuity approach; and can then also serve as a model "calibration". The use of traditional multiples may be limited in the case of startups – where profit and cash flows are often negative – and ratios such as
1327:
The accuracy of the DCF valuation will be impacted by the accuracy of the various (numerous) inputs and assumptions. Addressing this, private equity and venture capital analysts, in particular, apply (some of) the following. With the first two, the output price is then market related, and the model
1276:
Given this dependence on terminal value, analysts will often establish a "valuation range", or sensitivity table (see graphic), corresponding to various appropriate – and internally consistent – discount rates, exit multiples and perpetuity growth rates. For a discussion of the risks and advantages
1268:
than the previous: being more distant in time, and effectively summarizing the company's future, there is (significantly) more uncertainty as compared to the explicit forecast period; and yet, potentially (often) this result contributes a significant proportion of the total value. Here, a very high
302:
MedICT has chosen the perpetuity growth model to calculate the value of cash flows beyond the forecast period. They estimate that they will grow at about 6% for the rest of these years (this is extremely prudent given that they grew by 78% in year 5), and they assume a forward discount rate of 15%
1164:
Corporate finance analysts usually apply the first, listed company, approach: here though it is the risk-characteristics of the project that must determine the cost of equity, and not those of the parent company. M&A analysts likewise apply the first approach, with risk as well as the target
1427:
of DCF values, which allows the analyst to read the expected (i.e. average) value over the inputs, or the probability that the investment will have at least a particular value, or will generate a specific return. The approach is sometimes applied to corporate finance projects, see
997:, FCFE or dividends are typically modeled, as opposed to FCFF. This is because, often, capital expenditures, working capital and debt are not clearly defined for these corporates ("debt... is more akin to raw material than to a source of capital"), and cash flows to the
308:(Given that this is far bigger than the value for the first 5 years, it is suggested that the initial forecast period of 5 years is not long enough, and more time will be required for the company to reach maturity; although see discussion in article.)
807:
The initial step is to decide the forecast period, i.e. the time period for which the individual yearly cash flows input to the DCF formula will be explicitly modeled. Cash flows after the forecast period are represented by a single number; see
671:
869:
Typically, this forecast will be constructed using historical internal accounting and sales data, in addition to external industry data and economic indicators (for these latter, outside of large institutions, typically relying on
62:) have been used to determine the estimated yearly cash flow, which is assumed to occur at the end of each year (which is unrealistic especially for the year 1 cash flow; see comments aside). Figures are in $ thousands:
2144:
985:
these, or by separating these into their own DCF valuation where a higher discount rate reflects their uncertainty. Tax will receive very close attention. Often each business-line will be valued separately in a
311:
MedICT does not have any debt so all that is required is to add together the present value of the explicitly forecast cash flows (41) and the continuing value (491), giving an equity value of $ 532,000.
1676:
1367:" the stated value is; and identify which model inputs are most critical to the value. This allows for focus on the inputs that "really drive value", reducing the need to estimate dozens of variables.
1269:
proportion may suggest a flaw in the valuation (as commented in the example); but at the same time may, in fact, reflect how investors make money from equity investments – i.e. predominantly from
1181:
To determine current value, the analyst calculates the current value of the future cash flows simply by multiplying each period's cash flow by the discount factor for the period in question; see
2259:
1288:(i.e. as to opposed to listed mining corporates) the forecast period is the same as the "life of mine" – i.e. the DCF model will explicitly forecast all cashflows due to mining the
823:
to "converge" to that of its industry, with constant, long term growth applying to the continuing value thereafter; although, regardless, 5–10 years is common in practice (see
1234:. Key here is the treatment of the long term growth rate, and correspondingly, the forecast period number of years assumed for the company to arrive at this mature stage; see
871:
435:
2382:
1448:
The DCF value may be applied differently depending on context. An investor in listed equity will compare the value per share to the share's traded price, amongst other
969:
the free cash flow is the amount of cash available to be paid out to all investors in the company after the necessary investments under the business plan being valued.
815:
The forecast period must be chosen to be appropriate to the company's strategy, its market, or industry; theoretically corresponding to the time for the company's (
2153:
1738:
1475:. NPV is typically the primary selection criterion between these; although other investment measures considered, as visible from the DCF model itself, include
1320:(or dividends) has been modeled, this latter step is not required – and the discount rate would have been the cost of equity, as opposed to WACC. (Some add
1437:
1249:, (implicitly) assumes that the business will be sold at the end of the projection period at some multiple of its final explicitly forecast cash flow: see
927:
Approaches to identifying which assumptions are most impactful on the value – and thus need the most attention – and to model "calibration" are discussed
1491:, "Precedent Transactions Analysis", when selecting between potential investments; the valuation will typically be one step in, or following, a thorough
1359:
Very commonly, analysts will produce a valuation range, especially based on different terminal value assumptions as mentioned. They may also carry out a
916:
and associated financing; and in the long term, profitability (and other financial ratios) should tend to the industry average, as mentioned above; see
908:
At the same time, the resultant line items must talk to the business' operations: in general, growth in revenue will require corresponding increases in
970:
1289:
1254:
1034:
2274:
1804:
2395:
1819:
1064:
1316:, as above, the value of equity is calculated by subtracting any outstanding debts from the total of all discounted cash flows; where
51:
Its only investor is required to wait for five years before making an exit. Therefore, MedICT is using a forecast period of 5 years.
46:
2357:
2292:
2069:
1273:
or price appreciation. Its implied exit multiple can then act as a check, or "triangulation", on the perpetuity derived number.
2091:
1278:
1102:
1235:
921:
824:
2181:
1837:
2054:
2374:
1227:
747:
1464:. The above calibration will be less relevant here; reasonable and robust assumptions more so. A related approach is to "
1246:
994:
746:
or NPV. The second term represents the continuing value of future cash flows beyond the forecasting term; here applying a
49:
startup that has just finished its business plan. Its goal is to provide medical professionals with bookkeeping software.
1492:
366:
This article details the mechanics of the valuation, via a worked example; it also discusses modifications typical for
2456:
2361:
2231:
2162:
2042:
1849:
1304:
The equity value is the sum of the present values of the explicitly forecast cash flows, and the continuing value; see
1137:, a higher return is demanded in compensation; when mature, an approach similar to the preceding may be applied. See:
1094:
may be calculated for each period as the scheduled after-tax interest payment as a percentage of outstanding debt; see
1976:
1517:
1285:
1166:
966:
2204:
2079:
1919:
974:
342:
that represents the cash flow stream after the forecast period. In several contexts, DCF valuation is referred to as
1487:. Private equity and venture capital teams will similarly consider various measures and criteria, as well as recent
1329:
1197:
2370:
Using
Discounted Cash Flow Analysis in an International Setting: A Survey of Issues in Modeling the Cost of Capital
2329:
1597:
1109:
for each year of the forecast period. As the weight (and cost) of debt could vary over the forecast, each period's
701:
2474:
1522:
1337:
1261:
Whichever approach, the terminal value is then discounted by the factor corresponding to the final explicit date.
793:
The diagram aside shows an overview of the process of company valuation. All steps are explained in detail below.
2132:
1349:
1345:
54:
The forward discount rates for each year have been chosen based on the increasing maturity of the company. Only
1402:
1205:
1133:
by funding stage, as opposed to modeled ("Risk Group" in the example). In its early stages, where the business
355:
2009:
1429:
958:
fact, the above formulae do reflect this, since, from the perspective of a listed or private equity investor
894:
2249:
Company
Valuation in Mergers and Acquisitions: How is Discounted Cash Flow Applied by Leading Practitioners?
1915:
1779:
Company
Valuation in Mergers and Acquisitions: How is Discounted Cash Flow Applied by Leading Practitioners?
1309:
391:
2494:
2460:
2026:
1453:
1222:
The continuing, or "terminal" value, is the estimated value of all cash flows after the forecast period.
932:
875:
2388:
2333:
1647:
349:
Discounted cash flow valuation was used in industry as early as the 1700s or 1800s; it was explicated by
1512:
1080:
885:, a function of the analyst's forecasts re market size, demand, inventory availability, and the firm's
774:
343:
2280:
1145:. (Some analysts may instead account for this uncertainty by adjusting the cash flows directly: using
25:
1602:
1562:
1472:
1441:
1391:
1321:
1250:
1138:
987:
839:
802:
666:{\displaystyle \sum _{t=1}^{n}{\frac {FCFF_{t}}{(1+WACC_{t})^{t}}}+{\frac {\left}{(1+WACC_{n})^{n}}}}
409:
for a typical DCF valuation, with each step detailed in the text (click on image to see at full size)
335:
2113:
1798:
1452:. To the extent that the price is lower than the DCF number, so she will be inclined to invest; see
931:(the process is then somewhat iterative). For the components / steps of business modeling here, see
2352:
2343:
1825:
1567:
1449:
1317:
1217:
882:
754:
383:
339:
2450:
2432:
2268:
1527:
1142:
1095:
917:
2414:
1592:
1488:
1480:
1409:
1165:
capital structure informing both the cost of equity and, naturally, WACC. For the approach taken
1154:
1049:
782:
723:
428:, and displaying sensitivity to WACC and perpetuity growth (click on image to see at full size)
1932:
1876:
1607:
1572:
1313:
1013:, forecast assumptions must incorporate this reality, and outputs must similarly be "bound" by
59:
2323:
962:
expected cash flows are incremental, and the full FCFF or dividend stream is then discounted.)
902:
2464:
2401:
1953:
1945:
1471:
Corporations will often have several potential projects under consideration (or active), see
1395:
1353:
1305:
1239:
855:
901:) with corresponding capital requirements, can then be estimated as a function of sales via
2173:
2074:: Ch.6 in "Equity Valuation: Models from Leading Investment Banks". John Wiley & Sons.
1632:
1587:
1547:
1508:
1476:
1387:
1379:
1360:
1146:
1076:
1030:
1010:
978:
691:
387:
8:
1627:
1582:
1542:
1182:
1134:
1110:
843:
687:
360:
331:
55:
2499:
2407:
2030:
1557:
1432:. But, again, in the venture capital context, it is not often applied, seen as adding "
1363:– measuring the impact on value for a small change in the input – to demonstrate how "
1106:
1014:
951:
936:
816:
350:
2227:
2223:
2200:
2196:
2177:
2158:
2075:
2038:
1949:
1898:
1845:
1637:
1457:
1371:
1150:
1072:
982:
820:
743:
379:
326:) is a method of estimating the current value of a company based on projected future
1071:. An unlisted company’s Beta can be based on that of a listed proxy as adjusted for
2305:
2139:
1972:
1861:
1465:
1231:
1029:, and the definitions of "cashflow" will differ correspondingly; the best known is
1002:
731:
2145:
Investment
Valuation: Tools and Techniques for Determining the Value of Any Asset
1992:
2349:
2339:
2119:
1642:
1461:
1433:
1118:
1026:
909:
835:
375:
33:
2170:
Investment
Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions
2425:(Working paper; Duke University - Center for Health Policy, Law and Management)
2127:
1612:
1532:
1484:
1265:
1170:
1122:
1068:
1060:
1006:
898:
859:
831:
766:
758:
683:
421:
371:
21:
2488:
2298:
2288:
2261:
Startup valuation: applying the discounted cash flow method in six easy steps
2217:
2123:
1700:
1692:
1383:
1374:
valuations, based on different assumptions on economy-wide, "global" factors
1018:
1386:
of the various scenarios (discounted using a WACC appropriate to each); see
1253:. This is often the approach taken for venture capital valuations, where an
386:, and for sector-specific valuations in financial services and mining. See
363:
in the 1960s; and became widely used in U.S. courts in the 1980s and 1990s.
2282:
Probabilistic
Approaches: Scenario Analysis, Decision Trees and Simulations
1293:
1270:
1201:
1091:
913:
890:
886:
762:
739:
735:
17:
2151:
Tim Koller, Marc
Goedhart, David Wessels (McKinsey & Company) (2020).
1208:
with weather related demand — further adjustments may be required; see:
2316:
Valuing
Companies by Cash Flow Discounting: Ten Methods and Nine Theories
1672:
Valuing
Companies by Cash Flow Discounting: Ten Methods and Nine Theories
1406:
1193:
1052:, as based on the risk level associated with the company and its market.
1005:, cannot then be easily estimated. Discounting is correspondingly at the
778:
417:
29:
1035:
Residual income valuation § Comparison with other valuation methods
2422:
Equivalence between
Discounted Cash Flow (DCF) and Residual Income (RI)
1993:
A comparative study of valuation methodologies for mineral developments
770:
425:
1025:
Alternate approaches within DCF valuation will more directly consider
2428:
1904:
1424:
1370:
Analysts in private equity and corporate finance often also generate
1341:
1336:
The DCF value is invariably "checked" by comparing its corresponding
1063:, the analyst will apply a model such as the CAPM most commonly; see
1021:
in place will similarly impact corporate finance and M&A models.)
858:
is required for each year during the forecast period. These must be "
406:
327:
297:
This gives a total value of 41 for the first five years' cash flows.
2248:
1778:
2420:
2314:
2307:
Equivalence of ten different discounted cash flow valuation methods
1997:
The Journal of The South African Institute of Mining and Metallurgy
1863:
Equivalence of ten different discounted cash flow valuation methods
1670:
1296:) – and a continuing value is therefore not part of the valuation.
863:
769:
to the firm are those distributed among – or at least due to – all
742:); for corporate finance valuations, this represents the project's
397:
413:
1230:, essentially returning the value of the future cash flows via a
1126:
1084:
1065:
Capital asset pricing model § Asset-specific required return
947:
757:(FCFE) or dividends are modeled, and these are discounted at the
367:
2332:(Includes a review of basic valuation models, including DCF and
1412:
1364:
1189:
not to the forecast itself), affecting the required averaging.
849:
1793:
1791:
2167:
704:, combining the cost of equity and the after-tax cost of debt
334:. The cash flows are made up of those within the “explicit”
2384:
Selected Moments in the History of Discounted Present Value
1788:
1617:
1279:
Terminal value (finance) § Comparison of methodologies
1236:
Sustainable growth rate § From a financial perspective
1204:
with fluctuations in working capital linked to production;
1158:
1045:
A fundamental element of the valuation is to determine the
922:
Sustainable growth rate § From a financial perspective
825:
Sustainable growth rate § From a financial perspective
1226:
Typically the approach is to calculate this value using a
1169:, where risk-characteristics can differ (dramatically) by
402:
2022:
2020:
1844:(2022). "Corporate Finance: Theory and Practice." Wiley.
1518:
Corporate finance § Investment and project valuation
1394:. Note that in practice the required probability factors
2322:
Edward J. Green, Jose A. Lopez, and Zhenyu Wang (2003).
2154:
Valuation: Measuring and Managing the Value of Companies
1946:"How to Value a Seasonal Company Discounting Cash Flows"
1877:
Why do venture capitalists use such high discount rates?
753:
Note that for valuing equity, as opposed to "the firm",
2247:
W. Brotherson, K. Eades, R. Harris, R. Higgins (2014).
1777:
W. Brotherson, K. Eades, R. Harris, R. Higgins (2014).
2017:
893:. Future costs, fixed and variable, and investment in
1539:
Private equity / venture capital related techniques:
1440:); and the investment in time (and software) is then
1125:
valuations – and particularly where the company is a
438:
1401:
An extension of scenario-based valuations is to use
1332:. The latter two can be applied only at this stage.
1523:
Financial economics § Corporate finance theory
1129:, as in the example – the discount factor is often
1040:
942:There are several context dependent modifications:
809:
730:In general, "Value of firm" represents the firm's
716:
is the number of time periods to "maturity" or exit
2190:
2068:Armin Varmaz, Thorsten Poddig, Jan Viebig (2008).
665:
2368:T. Keck, E. Levengood, and A. Longfield (1998).
2345:Equity Valuation (Valuation of Cash Flow Streams)
2093:Evaluate Stock Price With Reverse-Engineering DCF
1624:Mergers and acquisitions related considerations:
1211:
1113:will be compounded over the periods to that date.
1055:Typically, for an established (listed) company:
2486:
1943:
1756:International Federation of Accountants (2008).
1430:Corporate finance § Quantifying uncertainty
1330:driven by the relevant variables and assumptions
398:Basic formula for firm valuation using DCF model
303:for beyond year 5. The terminal value is hence:
2213:
1688:
1686:
1684:
827:for discussion of the economic argument here).
2409:An Introduction to Cash Flow Valuation Methods
2325:Formulating the Imputed Cost of Equity Capital
2285:. New York University Stern School of Business
781:only. Where the latter are dividends then the
1821:Analysis and Valuation of Insurance Companies
881:The key aspect of the forecast is, arguably,
785:can be applied, modifying the formula above.
392:Valuation (finance) § Valuation overview
2434:Pro Forma Financial Statements and Valuation
2363:Project Appraisal Using Discounted Cash Flow
2291:, Sergio M. Focardi, Caroline Jonas (2017).
2275:New York University Stern School of Business
2193:Financial Valuation: Applications and Models
1758:Project Appraisal Using Discounted Cash Flow
1695:, Sergio M. Focardi, Caroline Jonas (2017).
1681:
1157:"; or via probability-weighting these as in
933:Outline of finance § Financial modeling
850:Determine cash flow for each forecast period
796:
26:Bond valuation § Present value approach
1139:Private equity § Investment timescales
1009:. Further, as these firms operate within a
928:
838:investments, the period will depend on the
2457:discounted cash flow valuation spreadsheet
2294:Equity Valuation – Science, Art, or Craft?
1893:
1891:
1889:
1717:
1715:
1713:
1711:
1709:
1697:Equity Valuation – Science, Art, or Craft?
1405:, passing relevant model inputs through a
1176:
775:Corporate finance § Capital structure
2419:Tham, Joseph and Tran Viet Thang (2003).
2258:Goort de Bruijn and Wout Bobbink (2019).
1773:
1771:
1769:
1767:
1765:
1739:The Founder’s Guide to Financial Modeling
1733:
1731:
1378:company-specific factors. In theory, an "
1299:
2168:Rosenbaum, Joshua; Joshua Pearl (2009).
1991:E.V. Lilford and R.C.A. Minnitt (2005).
1814:
1812:
1473:Capital budgeting § Ranked projects
412:
401:
305:(182*1.06 / (0.15–0.06)) × 0.229 = 491.
2479:Financial Modeling in Excel For Dummies
2394:Kubr, Marchesi, Ilar, Kienhuis (1998).
2358:International Federation of Accountants
1886:
1721:Kubr, Marchesi, Ilar, Kienhuis (1998).
1706:
1310:Intrinsic value (finance) § Equity
1143:Venture capital § Financing stages
777:); to equity, are those distributed to
761:instead of WACC which incorporates the
38:
16:This article is about the valuation of
2487:
2114:Financial modeling § Bibliography
1762:
1728:
2011:Probabilistic Approaches in Valuation
1809:
1752:
1750:
1748:
1746:
1096:Corporate finance § Debt capital
320:Valuation using discounted cash flows
2375:Journal of Applied Corporate Finance
1528:Financial modeling § Accounting
918:Financial modeling § Accounting
359:in 1938; it was widely discussed in
1103:value-weighted combination of these
977:will often be dealt with either by
773:holders of a corporate entity (see
13:
2157:(7th ed.). John Wiley & Sons.
1743:
1442:judged as unlikely to be warranted
1436:" (and requiring knowledge of the
1240:Stock valuation § Growth rate
14:
2511:
2037:, Harvard Business Review Press.
1579:DCF related investment measures:
1306:Equity (finance) § Valuation
1105:will then return the appropriate
1079:. (Other approaches, such as the
2330:Federal Reserve Bank of New York
1598:Modified internal rate of return
1041:Determine discount factor / rate
995:valuing financial services firms
810:§ Determine the continuing value
702:weighted average cost of capital
338:, together with a continuing or
2133:Principles of Corporate Finance
2084:
2062:
2047:
2002:
1985:
1966:
1937:
1925:
1909:
1869:
1854:
1800:Valuing Financial Service Firms
1292:(including the expenses due to
2439:Corporate Finance: 5th Edition
2270:Discounted Cash Flow Valuation
1933:"Mid-Year Discount Definition"
1830:
1663:
1212:Determine the continuing value
954:, payroll, and other expenses.
946:Importantly, in the case of a
651:
622:
611:
564:
513:
484:
356:The Theory of Investment Value
275:
186:
1:
2477:, Danielle Stein Fairhurst ("
2102:
1656:
2310:. IESE Research Papers. D549
1866:. IESE Research Papers. D549
1554:Economic profit approaches:
1454:Margin of safety (financial)
1384:probability-weighted average
1346:a relevant company or sector
1286:valuation of mining projects
1153:to the forecast numbers, a "
1011:highly regulated environment
390:for further discussion, and
7:
2389:Rotman School of Management
2319:. EFMA 2002 London Meetings
2191:James R. Hitchnera (2006).
1881:The Journal of Risk Finance
1648:Accretion/dilution analysis
1498:
1312:. Where the forecast is of
1149:; or applying (subjective)
10:
2516:
2253:Journal of Applied Finance
2111:
1838:"Putting a value on banks"
1783:Journal of Applied Finance
1434:precision but not accuracy
1348:, based on share price or
1215:
1192:For companies with strong
800:
276:
256:
236:
219:
187:
167:
147:
127:
107:
87:
15:
2053:Aswath Damodaran (2016).
1944:Fernandez, Pablo (2019).
1797:Aswath Damodaran (2009).
1603:Discounted payback period
1563:Residual income valuation
1396:are usually too uncertain
1392:expected commercial value
1251:Valuation using multiples
1228:"perpetuity growth model"
988:sum-of-the-parts analysis
803:Forecast period (finance)
797:Determine forecast period
748:"perpetuity growth model"
686:to the firm (essentially
301:
296:
225:
44:
2353:Fuqua School of Business
2313:Pablo Fernandez (2015).
2304:Pablo Fernandez (2004).
2216:Equity Asset Valuation (
2214:Jerald E. Pinto (2020).
1900:How to value a start-up?
1897:Guillaume Desaché (ND).
1860:Pablo Fernandez (2004).
1826:Columbia Business School
1725:. McKinsey & Company
1669:Pablo Fernandez (2015).
1568:Clean surplus accounting
1450:stock selection criteria
1438:underlying distributions
1318:free cash flow to equity
1277:of the two methods, see
1218:Terminal value (finance)
755:free cash flow to equity
424:to estimate the stock's
384:mergers and acquisitions
2415:Harvard Business School
2378:, Fall, pp. 82–99.
2279:Aswath Damodaran (ND).
2267:Aswath Damodaran (ND).
2071:Monte Carlo FCFF Models
2008:Aswath Damodaran (ND).
1593:Internal rate of return
1489:comparable transactions
1350:most recent transaction
1177:Determine current value
1155:penalized present value
1050:required rate of return
975:strategic opportunities
903:"common-sized analysis"
783:dividend discount model
724:sustainable growth rate
2469:Expectations Investing
2451:Valuation spreadsheets
2402:McKinsey & Company
2035:Expectations Investing
1875:Sanjai Bhagat (2013).
1818:Doron Nissim (2010).
1608:Equivalent annual cost
1573:Adjusted present value
1403:Monte Carlo simulation
1322:readily available cash
1314:free cash flow to firm
1300:Determine equity value
1257:is explicitly planned.
1247:exit multiple approach
1196:— e.g.: retailers and
1167:in the mining industry
1135:is more likely to fail
854:As above, an explicit
788:
667:
459:
429:
410:
237:Forward Discount Rate
60:free cash flow to firm
56:operational cash flows
2465:Michael J. Mauboussin
2406:R. S. Ruback. (1995)
2174:John Wiley & Sons
1931:Chris Haynes (N.D.).
1883:, Vol. 15 No. 1, 2014
1737:Dave Lishego (2019).
1206:Oil and gas companies
1147:certainty equivalents
979:probability weighting
668:
439:
416:
405:
344:the "income approach"
277:Discounted Cash Flow
2381:Eric Kirzner (2006)
2090:Ben McClure (2015).
1633:Post-money valuation
1588:Return on investment
1548:First Chicago Method
1509:Discounted cash flow
1505:Further discussion:
1388:First Chicago Method
1361:sensitivity analysis
1324:to the FCFF value.)
1264:Note that this step
840:investment timescale
694:) as reduced for tax
692:capital expenditures
436:
388:Discounted cash flow
45:MedICT is a medical
2495:Valuation (finance)
2475:DCF Valuation Sheet
2301:Research Foundation
2056:Musings on Markets;
1978:Musings on Markets;
1703:Research Foundation
1628:Pre-money valuation
1543:LBO valuation model
1183:time value of money
688:operating cash flow
361:financial economics
332:time value of money
41:
2453:, Aswath Damodaran
2220:Investment Series)
2031:Michael Mauboussin
1920:Queen's University
1583:Capital efficiency
1558:Market value added
1423:. The output is a
1356:are then employed.
1087:are also applied.)
937:financial forecast
883:predicting revenue
856:cash flow forecast
710:is the time period
663:
430:
411:
351:John Burr Williams
39:
2183:978-0-470-44220-3
1638:Minority discount
1511:, and especially
1458:Undervalued stock
1266:carries more risk
1245:The alternative,
1117:By contrast, for
1081:"Build-Up method"
1077:Hamada's equation
1015:regulatory limits
967:M&A valuation
872:published surveys
744:net present value
738:as distinct from
661:
615:
523:
420:valuation, using
380:corporate finance
330:adjusted for the
317:
316:
2507:
2461:Alfred Rappaport
2437:. Chapter 21 in
2411:(Case # 295-155)
2237:
2210:
2187:
2140:Aswath Damodaran
2096:
2088:
2082:
2066:
2060:
2051:
2045:
2027:Alfred Rappaport
2024:
2015:
2006:
2000:
1989:
1983:
1973:Aswath Damodaran
1970:
1964:
1963:
1961:
1960:
1941:
1935:
1929:
1923:
1913:
1907:
1895:
1884:
1873:
1867:
1858:
1852:
1840:in Yann Le Fur,
1834:
1828:
1816:
1807:
1795:
1786:
1775:
1760:
1754:
1741:
1735:
1726:
1719:
1704:
1690:
1679:
1667:
1466:reverse engineer
1255:exit transaction
1232:geometric series
1075:, ie debt, via
1003:enterprise value
939:more generally.
876:industry reports
732:enterprise value
672:
670:
669:
664:
662:
660:
659:
658:
649:
648:
620:
616:
614:
610:
609:
591:
590:
562:
561:
560:
535:
529:
524:
522:
521:
520:
511:
510:
482:
481:
480:
461:
458:
453:
432:Value of firm =
382:"projects", and
257:Discount Factor
42:
2515:
2514:
2510:
2509:
2508:
2506:
2505:
2504:
2485:
2484:
2350:Duke University
2340:Campbell Harvey
2234:
2207:
2184:
2172:. Hoboken, NJ:
2120:Richard Brealey
2116:
2105:
2100:
2099:
2089:
2085:
2067:
2063:
2052:
2048:
2025:
2018:
2007:
2003:
1990:
1986:
1971:
1967:
1958:
1956:
1942:
1938:
1930:
1926:
1914:
1910:
1896:
1887:
1874:
1870:
1859:
1855:
1835:
1831:
1817:
1810:
1796:
1789:
1776:
1763:
1755:
1744:
1736:
1729:
1720:
1707:
1691:
1682:
1668:
1664:
1659:
1654:
1643:Control premium
1501:
1462:Value investing
1382:" value is the
1344:to the same of
1302:
1220:
1214:
1179:
1119:venture capital
1111:discount factor
1043:
1027:economic profit
910:working capital
860:Free cash flows
852:
836:venture capital
805:
799:
791:
767:Free cash flows
654:
650:
644:
640:
621:
599:
595:
580:
576:
563:
550:
546:
536:
534:
530:
528:
516:
512:
506:
502:
483:
476:
472:
462:
460:
454:
443:
437:
434:
433:
422:free cash flows
400:
376:venture capital
336:forecast period
37:
34:Income approach
12:
11:
5:
2513:
2503:
2502:
2497:
2483:
2482:
2472:
2454:
2442:
2441:
2426:
2417:
2404:
2392:
2379:
2366:
2355:
2337:
2320:
2311:
2302:
2286:
2277:
2265:
2256:
2239:
2238:
2233:978-1119628101
2232:
2211:
2205:
2188:
2182:
2165:
2163:978-1119610885
2149:
2137:
2128:Franklin Allen
2108:Standard texts
2104:
2101:
2098:
2097:
2083:
2061:
2046:
2043:978-1591391272
2016:
2001:
1984:
1965:
1936:
1924:
1908:
1885:
1868:
1853:
1850:978-1119841623
1829:
1808:
1787:
1761:
1742:
1727:
1705:
1680:
1661:
1660:
1658:
1655:
1653:
1652:
1651:
1650:
1645:
1640:
1635:
1630:
1622:
1621:
1620:
1615:
1613:Cut off period
1610:
1605:
1600:
1595:
1590:
1585:
1577:
1576:
1575:
1570:
1565:
1560:
1552:
1551:
1550:
1545:
1537:
1536:
1535:
1533:Owner earnings
1530:
1525:
1520:
1515:
1513:§ Shortcomings
1502:
1500:
1497:
1485:payback period
1446:
1445:
1399:
1372:scenario-based
1368:
1357:
1301:
1298:
1259:
1258:
1243:
1216:Main article:
1213:
1210:
1178:
1175:
1123:private equity
1115:
1114:
1099:
1088:
1069:Beta (finance)
1061:cost of equity
1042:
1039:
1023:
1022:
1019:Loan covenants
1007:cost of equity
991:
963:
955:
899:owner earnings
851:
848:
832:private equity
801:Main article:
798:
795:
790:
787:
759:cost of equity
728:
727:
717:
711:
705:
695:
684:free cash flow
657:
653:
647:
643:
639:
636:
633:
630:
627:
624:
619:
613:
608:
605:
602:
598:
594:
589:
586:
583:
579:
575:
572:
569:
566:
559:
556:
553:
549:
545:
542:
539:
533:
527:
519:
515:
509:
505:
501:
498:
495:
492:
489:
486:
479:
475:
471:
468:
465:
457:
452:
449:
446:
442:
399:
396:
372:private equity
340:terminal value
315:
314:
299:
298:
294:
293:
290:
287:
284:
281:
278:
274:
273:
270:
267:
264:
261:
258:
254:
253:
250:
247:
244:
241:
238:
234:
233:
230:
229:Late Start Up
227:
226:Early Startup
224:
223:Seeking Money
221:
217:
216:
211:
206:
201:
196:
191:
185:
184:
181:
178:
175:
172:
169:
165:
164:
161:
158:
155:
152:
149:
145:
144:
141:
138:
135:
132:
129:
125:
124:
121:
118:
115:
112:
109:
105:
104:
101:
98:
95:
92:
89:
85:
84:
81:
78:
75:
72:
69:
65:
64:
9:
6:
4:
3:
2:
2512:
2501:
2498:
2496:
2493:
2492:
2490:
2480:
2476:
2473:
2470:
2466:
2462:
2458:
2455:
2452:
2449:
2448:
2447:
2446:
2440:
2436:
2435:
2430:
2427:
2424:
2423:
2418:
2416:
2412:
2410:
2405:
2403:
2399:
2398:
2393:
2390:
2386:
2385:
2380:
2377:
2376:
2371:
2367:
2365:
2364:
2359:
2356:
2354:
2351:
2347:
2346:
2341:
2338:
2335:
2331:
2327:
2326:
2321:
2318:
2317:
2312:
2309:
2308:
2303:
2300:
2299:CFA Institute
2296:
2295:
2290:
2289:Frank Fabozzi
2287:
2284:
2283:
2278:
2276:
2272:
2271:
2266:
2263:
2262:
2257:
2254:
2250:
2246:
2245:
2244:
2243:
2235:
2229:
2225:
2224:Wiley Finance
2221:
2219:
2218:CFA Institute
2212:
2208:
2206:0-471-76117-6
2202:
2198:
2197:Wiley Finance
2194:
2189:
2185:
2179:
2175:
2171:
2166:
2164:
2160:
2156:
2155:
2150:
2147:
2146:
2141:
2138:
2136:. Mcgraw-Hill
2135:
2134:
2129:
2125:
2124:Stewart Myers
2121:
2118:
2117:
2115:
2110:
2109:
2095:
2094:
2087:
2081:
2080:9780470031490
2077:
2073:
2072:
2065:
2059:
2057:
2050:
2044:
2040:
2036:
2032:
2028:
2023:
2021:
2013:
2012:
2005:
1998:
1994:
1988:
1981:
1979:
1974:
1969:
1955:
1951:
1947:
1940:
1934:
1928:
1921:
1917:
1916:Discount rate
1912:
1906:
1902:
1901:
1894:
1892:
1890:
1882:
1878:
1872:
1865:
1864:
1857:
1851:
1847:
1843:
1839:
1833:
1827:
1823:
1822:
1815:
1813:
1806:
1802:
1801:
1794:
1792:
1784:
1780:
1774:
1772:
1770:
1768:
1766:
1759:
1753:
1751:
1749:
1747:
1740:
1734:
1732:
1724:
1718:
1716:
1714:
1712:
1710:
1702:
1701:CFA Institute
1698:
1694:
1693:Frank Fabozzi
1689:
1687:
1685:
1678:
1674:
1673:
1666:
1662:
1649:
1646:
1644:
1641:
1639:
1636:
1634:
1631:
1629:
1626:
1625:
1623:
1619:
1616:
1614:
1611:
1609:
1606:
1604:
1601:
1599:
1596:
1594:
1591:
1589:
1586:
1584:
1581:
1580:
1578:
1574:
1571:
1569:
1566:
1564:
1561:
1559:
1556:
1555:
1553:
1549:
1546:
1544:
1541:
1540:
1538:
1534:
1531:
1529:
1526:
1524:
1521:
1519:
1516:
1514:
1510:
1507:
1506:
1504:
1503:
1496:
1494:
1493:due diligence
1490:
1486:
1482:
1478:
1474:
1469:
1467:
1463:
1459:
1455:
1451:
1443:
1439:
1435:
1431:
1426:
1422:
1418:
1414:
1411:
1410:risk-analysis
1408:
1404:
1400:
1397:
1393:
1389:
1385:
1381:
1377:
1373:
1369:
1366:
1362:
1358:
1355:
1351:
1347:
1343:
1339:
1335:
1334:
1333:
1331:
1325:
1323:
1319:
1315:
1311:
1307:
1297:
1295:
1291:
1287:
1282:
1280:
1274:
1272:
1271:capital gains
1267:
1262:
1256:
1252:
1248:
1244:
1241:
1237:
1233:
1229:
1225:
1224:
1223:
1219:
1209:
1207:
1203:
1199:
1198:holiday sales
1195:
1190:
1186:
1184:
1174:
1172:
1168:
1162:
1160:
1156:
1152:
1148:
1144:
1140:
1136:
1132:
1128:
1124:
1120:
1112:
1108:
1107:discount rate
1104:
1100:
1097:
1093:
1089:
1086:
1082:
1078:
1074:
1070:
1066:
1062:
1058:
1057:
1056:
1053:
1051:
1048:
1038:
1036:
1032:
1028:
1020:
1016:
1012:
1008:
1004:
1000:
996:
992:
989:
984:
980:
976:
972:
968:
964:
961:
956:
953:
949:
945:
944:
943:
940:
938:
935:, as well as
934:
930:
925:
923:
919:
915:
911:
906:
904:
900:
896:
892:
888:
884:
879:
877:
873:
867:
865:
861:
857:
847:
845:
844:exit strategy
841:
837:
833:
828:
826:
822:
818:
813:
811:
804:
794:
786:
784:
780:
776:
772:
768:
764:
760:
756:
751:
749:
745:
741:
737:
733:
726:at that point
725:
721:
718:
715:
712:
709:
706:
703:
699:
696:
693:
689:
685:
681:
678:
677:
676:
673:
655:
645:
641:
637:
634:
631:
628:
625:
617:
606:
603:
600:
596:
592:
587:
584:
581:
577:
573:
570:
567:
557:
554:
551:
547:
543:
540:
537:
531:
525:
517:
507:
503:
499:
496:
493:
490:
487:
477:
473:
469:
466:
463:
455:
450:
447:
444:
440:
427:
423:
419:
415:
408:
404:
395:
394:for context.
393:
389:
385:
381:
377:
373:
369:
364:
362:
358:
357:
352:
347:
345:
341:
337:
333:
329:
325:
324:DCF valuation
321:
313:
309:
306:
300:
295:
291:
288:
285:
282:
279:
271:
268:
265:
262:
259:
255:
251:
248:
245:
242:
239:
235:
231:
228:
222:
218:
215:
212:
210:
207:
205:
202:
200:
197:
195:
192:
190:
182:
179:
176:
173:
170:
166:
162:
159:
156:
153:
150:
146:
142:
139:
136:
133:
130:
126:
122:
119:
116:
113:
110:
106:
102:
99:
96:
93:
90:
86:
82:
79:
76:
73:
70:
67:
66:
63:
61:
57:
52:
48:
43:
35:
31:
27:
23:
19:
2478:
2468:
2444:
2443:
2438:
2433:
2421:
2408:
2396:
2383:
2373:
2369:
2362:
2344:
2324:
2315:
2306:
2293:
2281:
2269:
2260:
2255:, Vol. 24;2.
2252:
2241:
2240:
2215:
2192:
2169:
2152:
2143:
2131:
2107:
2106:
2092:
2086:
2070:
2064:
2055:
2049:
2034:
2010:
2004:
1996:
1987:
1977:
1968:
1957:. Retrieved
1939:
1927:
1911:
1899:
1880:
1871:
1862:
1856:
1841:
1832:
1820:
1799:
1785:, Vol. 24;2.
1782:
1757:
1722:
1696:
1671:
1665:
1470:
1447:
1421:Crystal Ball
1420:
1416:
1375:
1326:
1303:
1294:mine closure
1283:
1275:
1263:
1260:
1221:
1202:agribusiness
1191:
1187:
1180:
1163:
1130:
1116:
1092:cost of debt
1054:
1046:
1044:
1024:
1001:, and hence
998:
959:
941:
926:
914:fixed assets
907:
897:(see, here,
891:market power
887:market share
880:
868:
853:
829:
814:
806:
792:
779:shareholders
763:cost of debt
752:
740:market price
736:market value
729:
719:
713:
707:
697:
679:
674:
431:
365:
354:
348:
323:
319:
318:
310:
307:
304:
213:
208:
203:
198:
193:
188:
53:
50:
2397:Starting Up
2264:. ey.com/nl
2014:. Stern NYU
1999:, Jan. 2005
1723:Starting Up
1407:spreadsheet
1398:to do this.
1354:price/sales
1194:seasonality
1047:appropriate
983:haircutting
418:Spreadsheet
220:Risk Group
68:Cash flows
30:Real estate
2489:Categories
2391:(Archived)
2242:Discussion
2112:See also:
2103:Literature
1959:2021-10-15
1805:Stern, NYU
1657:References
1415:, such as
1376:as well as
1151:"haircuts"
771:securities
734:(i.e. its
426:fair value
328:cash flows
148:Marketing
128:Car Lease
108:Personnel
2500:Cash flow
2445:Resources
2429:Ivo Welch
1905:HEC Paris
1425:histogram
1342:EV/EBITDA
971:Synergies
864:dividends
593:−
441:∑
407:Flowchart
88:Revenues
2431:(2022).
2360:(2008).
2342:(1997).
2142:(2012).
2130:(2013).
2033:(2003).
1980:Myth 5.5
1975:(2016).
1922:minewiki
1499:See also
1380:unbiased
1328:will be
1284:For the
1173:, see:.
1171:property
1059:For the
368:startups
40:Example
2148:. Wiley
1842:et. al.
1290:reserve
1127:startup
1085:T-model
1073:gearing
965:For an
948:startup
812:below.
722:is the
700:is the
682:is the
353:in his
232:Mature
83:Year 5
80:Year 4
77:Year 3
74:Year 2
71:Year 1
2230:
2203:
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821:return
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690:minus
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272:0.229
269:0.275
266:0.343
263:0.446
260:0.625
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1417:@Risk
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283:(10)
280:(22)
189:Total
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120:−160
117:−110
103:+460
100:+330
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22:Bonds
2463:and
2334:CAPM
2228:ISBN
2201:ISBN
2178:ISBN
2159:ISBN
2076:ISBN
2039:ISBN
2029:and
1950:SSRN
1846:ISBN
1836:See
1677:EFMA
1618:PVGO
1483:and
1390:and
1308:and
1238:and
1159:rNPV
1121:and
1101:The
1090:The
1067:and
999:firm
952:COGS
889:and
874:and
842:and
834:and
830:For
698:WACC
680:FCFF
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252:20%
249:25%
246:30%
243:40%
240:60%
214:+182
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183:−30
180:−25
177:−20
174:−20
171:−20
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