Does anyone actually use DCF’s?

Question for current/ ex bankers. I'm a current 2nd year analyst at an EB and I've never seen a DCF. It seems like this was taught broadly as a common valuation method when I was prepping for the job and I'm trying to understand if my experience is the norm or if it has to do with the transactions I work on.

My theory would be at this point your wacc/ discount rate is so low that you get such high valuations it just doesn't make sense to use really. Would love to hear if this has been the experience of others as well.

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Comments (21)

Most Helpful
  • Associate 3 in IB-M&A
Aug 20, 2021 - 3:38pm

My team will use them in pitches when building a football field to illustrate valuation range but I cover Fintech so they're pretty useless and we always focus on transaction and public multiples anyway. I have a template so throwing one together isn't terribly time consuming, but a big waste of time and the MD wants to see a DCF so the MD gets a DCF.

  • Analyst 2 in IB-M&A
Aug 20, 2021 - 4:06pm

Unfortunately commonly included in my materials but frankly almost everything trades on a multiples basis and dcf is just dumb because it gets back solved into to produce a similar value to the multiple range. When spreading wacc and other inputs that get us outside of the zip code of our sotp or multiples approach we sometimes just toss it lol nobody takes dcf seriously it seems   

  • Analyst 1 in IB-M&A
Aug 20, 2021 - 4:28pm

What industry? And mind sharing rough size of transactions? I struggle to understand how it could make sense/ why it would be used when an LBO or multiples should be more meaningful in any situation I can think of.

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  • Analyst 1 in IB-M&A
Aug 20, 2021 - 4:27pm

Original poster-yes, I've seen a dcf done, but it's often very back of the envelope and backed into, so everyone knows it's complete bullshit. It's also often a template. Also, for the person above, no not a low growth sector.   

Aug 20, 2021 - 10:53pm

To give you another data point, I banked in 2014, 2015,16,17 and 19. DCF then for me (mainly product banker with most transaction experience prob on the m&a-type side but have exp in RX, ecm, PE/lbo, board/fairness stuff too among other types) seems like it was fairly routinely used based on my memory for different transactions and different analyses. Not that I necessarily was doing a DCF a week, but it was a common enough exercise that maybe I was doing it a bit less than that pace but still maybe kinda close. 

  • Analyst 1 in Risk Mnmgt
Aug 20, 2021 - 11:09pm

DCF questions get asked because it's a gating questions that's pretty easy. If you ask something more complicated, it might screen too much when you are looking for summers. It's also basically something that shows you have a pulse and have bothered to read the guides so you don't end up with as many people who accidentally find themselves in banking and want out in six months.

  • Analyst 1 in Risk Mnmgt
Aug 20, 2021 - 11:06pm

It depends what are you doing. Yeah, if it's like something that's client facing DCFs aren't used. Precedents and comps are going to be more valuable, the client is going to be able to have a better discussion on those. But on an internal perspective, we use DCFs a lot to assess the collateral we have since most (aside from ABLs) debt banks hold or originate will have a first lien collateral on the EV of a company basically.

  • Teller in PE - Other
Aug 20, 2021 - 11:22pm

Genuinely thought this post was sarcastic at first. 

I think what's more important isn't the value that the DCF spits out to you but what it's drivers explain to you. It's a tool to help you understand the drivers that are embedded but not apparent in your multiples analysis for example. 

If you'v

Aug 21, 2021 - 11:19am


Out of curiosity are you primarily doing an NAV model with a terminal value of $0 or just a regular DCF? Always wondered how M&M groups went about valuation


Aug 21, 2021 - 10:38am

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