DCF Question - Please Help!
Would appreciate any help on this!
I am making a DCF for a Company and I am running into an issue with the value. The company has very high historical CapEx, for example 2017 EBITDA was $5.8bn and CapEx was $5.6bn, as a result of this the free-cash flow is very small. In my projection period, a similar thing happens - some years have negative FCF while others just have very small FCF.
As a result of this, all the value of my DCF is being derived from the terminal value, where I used a multiple of 10x (mean of comps).
I am wondering if this is correct, or should I not even use a DCF for a company like this and use comps or something else.
Any help is appreciated!
Might not be any magical way around it - cash is king after all - but there are a couple things you can do that will make your life easier: - check the capex levels at the comps, and if they are substantially higher/lower (as a % of revenue/EBITDA) make sure you understand why, and more importantly, make sure you can defend them as actual comps - find a research report with a projected cash flow statement for your company. if the latest year's capex was a one time spike, you don't want to extrapolate that out in perpetuity - as a sanity check, see if any of the research (equity or debt) has a DCF. any company with $6.0 billion in ebitda is going to be well covered
Thanks for the reply!
I did take a look at ER reports and most of them don't have a DCF. For the ones that show cash flow, my numbers match approximately. But I am just wondering if the TV is such a significant portion of value, is it even useful using a DCF?
Might depend a little on the industry, but sure it matters, even if it's mostly TV. There are huge companies that don't generate any cash (esp in tech) but investors clearly think there's value in them. Just make sure you understand what all the capex is for, and if there's a credible case to be made that it will taper way off as the business matures.
Awesome, thanks a lot! I was able to get access to an excel model for one of the ER reports and noticed they had a similar issue, where TV was an extremely large part of overall value
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