Is an integrated financial model necessary for forecasting financials & valuation?


Is an integrated three statement model necessary for forecasting and valuing a company? I have a hedge fund interview and need a DCF model. Is not not possible to forecast unlevered free cash flow using: tax-affected EBIT, add capex, change in working capital, and D&A. Then once you discount unlevered free cash flow using WACC to subtract current debt on the balance sheet to get equity value?

I understand interest payments can increase over time. I this captured in the cost of debt in WACC? Can you not \use historic net working capital as a percent of sales for forecasting unlevered free cash flow?


Comments (3)

Nov 20, 2015

Yes you can. For a quick & dirty DCF you can do what you mentioned - check out Rosenbaum's DCF template for an example of how its done.

best would be to forecast BS for sanity checks still

Nov 20, 2015

I would build a full operating model for an interview, just to show you can, and also to show you know how to try understanding a business at a more granular level.

Feb 2, 2016