When does it not make sense to DCF?
Hi Monkeys,
Out of curiosity, when does it not make sense to use a DCF? I know when cash flows are negative it doesn't make sense, but are there any other reasons?
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Refer to google.
Unstable/unpredictable cash flows, difficult to calculate WACC (fin. institutions). But really, there are a myriad of reasons. Use the goog.
What do you use for start ups?
when you're not willing to put in the time. otherwise always ;)
straight from M&I guide: "You do not use a DCF if the company has unstable or unpredictable cash flows (tech or bio-tech startup) or when debt and working capital serve a fundamentally different role. For example, banks and financial institutions do not re-invest debt and working capital is a huge part of their Balance Sheets – so you wouldn’t use a DCF for such companies."
I work in venture capital, and we never use DCF for startups. As the above mentioned, you generally don't use it if you're dealing with a company that has unstable cash flows.
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