DCF Model?

I am currently trying to build a DCF model. I have calculated FCF over a 5 year period and have a terminal value based on a 13x EV / EBITDA from previous m&a transactions. When discounting the cashflows I have a sum of ~$500M, ,while the enterprise value of the company is ~$1.3B. What am I doing wrong? How can I make my the NPV, sum of discounted cash flow or dcf enterprise value higher?

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Comments (5)

Mar 28, 2021 - 9:15am

If you're discounting FCF to the firm, the sum should be the EV. So, 1) check that you're discounting the correct CF with the appropriate discount rate and 2) Double check your EV to Eq. bridge. You might have the signs wrong on your adjustments. From EV to go to Eq.V, you need to subtract Debt, add Cash, subtract Minorities and add Aso/JVs. Also, subtract any underfunded pension obligations of defined contribution schemes (if any)

Laborare Pugnare Parati Sumus

Mar 28, 2021 - 3:23pm

I can't form a view based solely on what you wrote but remember, you do not need (and most of the times you can't) to reconcile public Cos valuation using intrinsic approaches. This is a public Co, it's equity value (and hence EV) is formed from the market daily. From its market cap you then adjust for the EV to Eq.V items and get EV. In this case, Net Debt seems negative so EV<Eq.V . Whether cash flows can support such a valuation is a completely different story.

Laborare Pugnare Parati Sumus

Mar 28, 2021 - 3:29pm

Continuing here: Net debt is negative so EV<Eq.V. Whether cash flows can support such a valuation is a different story. In terms of mechanics, make sure your cash flows calcs include all necessary adjustments, growth rates, WACC etc are correct. If you get those right you can then adjust your assumptions to get closer to the market's valuation 

Laborare Pugnare Parati Sumus

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