Discounted Cash Flow valuation model. Calculate enterprise value using projected free cash flows and a discount rate.
| Period | Free Cash Flow | Present Value |
|---|
Simplified DCF model. A full valuation includes working capital analysis, capex projections, and sensitivity analysis.
The Discounted Cash Flow (DCF) model is a fundamental valuation method used by investors, analysts, and advisors to estimate what a business is worth today based on the money it is expected to generate in the future.
The core idea is straightforward: a euro earned five years from now is worth less than a euro today, because you could invest that euro and earn a return in the meantime. The discount rate captures this concept, and it also reflects the riskiness of the cash flows. Riskier businesses require higher discount rates.
The terminal value represents the business value beyond your explicit forecast period. It typically accounts for 60-80% of total value in a DCF, which is why the terminal growth rate assumption matters so much. Be conservative here: very few businesses can grow faster than the overall economy indefinitely.
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