Operating Model vs. DCF
A DCF model values a company based on it's cash flows.
A 3-statement model (AKA, an Operating model), gives a projection of a company's financial statements.
How do a 3-statement model and a DCF model relate? Is it such that you use a 3-statement model to get a projection of a company's cash flows, and then plug those projected cash flows into a DCF to get a valuation?
Yes, you have the right idea. Your free cash flows will flow from the cash flow statement (for the most part), but the rest is typically on its own - assumptions of discount rates, growth rates, exit multiples, etc.
You basically build the op model first and then on top of that a DCF. So the op model is just 3 interconnected statements. DCF then picks the right cells from that (to calculate FCF) and then discounts those to PV.
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