DCF Question and Calculating Equity Value from Enterprise Value
Hi all,
Basic questions.
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Say you use DCF to present value a stream of FCF. Starting with FY 2018 forecast in the model as n = 1. Do you actually also add FCF from FY 2017 into the net stream of cash flow which you then discount? Or do you only add up all the streams of cash flow from 2018 onwards to get the enterprise value?
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If FY 2018 is n=1, that means the Enterprise Value that I get is as of 12/31/2017 is that correct?
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Once you get the EV, you want to then calculate the Equity Value. Equity value = Enterprise value - Debt + Cash. Can you actually use debt and cash balances of June 2018 instead of FY 2017 balances?
Thanks
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Hope that helps.
If your base date is 12/21/2017, you must add FCF from that point onwards. So, FY 2018E would be your first forecast year (n =1).
Yes, you are right.
In a potential negotiation, the Equity Value will consider your net debt balance at that moment in time. So the most recent debt and cash positions should be used. The best of worlds is to always update your valuation model to the most recent as possible (base date = 31/08/2018 for instance.)
Thanks for the response!
For #1, do I need to add 2017 FCF (i.e. n=0)?
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