Hi, I'm trying to build a dcf model analysis. I got a company and this company considered a bluechip company in my country. The problem is when I calculating a Unlevered Free Cash Flow the calculation shows a negative value, and it is not in the quartal but also annually. The company has a huge negative number in changes in working capital since this company is a manufacture and need to restock their inventory. I watch another thread and shows that negative value should be included in the calculation. So can I used the negative number when all of it is negative to calculate dcf analysis?
27 Jul 2019
The guide says it's because fin institutions are highly levered and they do not re-invest debt in the business and instead use it to create products. Also, interest is a critical part of a bank's business model and working capital takes up a large part of their balance sheet. What exactly does this mean? Is there a better answer to this? And what are some good reasons why you would not use a DCF? Other than having unpredictable/unstable cash flow and for financial institutions. Thanks. Valuing Financial Institutions and Banks From the What is Financial Institutions Group?
28 Aug 2011
Doing one for a stock pitch for an investment club. Is there any quicker way to do it? Intuitively with the accounts needed for a DCF I could always take the shortcut and project capex as a % of sales and depreciation as a % of capex, but do industry professionals build a full 3 statement model with depreciation/debt/NWC schedule every time they do a DCF analysis(or more specifically, calculating unlevered free cash flow as capex/dep/change in NWC is projected).
18 Aug 2015
It's a well-known fact that the vast majority of us finance types can do amazing things with other people's money while consistently shitting the bed with our own. I was inspired to write a post addressing this topic today because I was trying to decide what to do with my car loan this weekend. Some context: the loan has a 36 month term (of which I've paid 14), and an interest rate of 12.99% - hold the monkey shit, I had no credit and this is the lovely steaming turd of an interest rate Wells Fargo was kind enough to concoct for me, and I have enough saved up to pay off the loan balance in
30 Jul 2012
Every interview I've had I've been asked "walk me through a DCF analysis". However how technical must you go? Should you go through it in a basic way expecting them to have some follow up questions or should you go in depth throughout? I try to keep my answer fairly structured so I don't drift away from the question and so when they have any questions they can easily refer back to a particular point. So I normally start off by mentioning it to be a valuation tool used to find the intrinsic value and then begin running them through the steps: calculate FFCF (explaining what it is), calculate
23 Aug 2016
I'm currently trying to build my own DCF model. I've studied the Rosenbaum format as laid out in his Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions. Does anyone have any excel files of DCF models they've made themselves or at work that I could go off of? I would like to get a feel for another one. Anything will help!
18 Jun 2012
I am trying to figure out where a company's Line of Credit fits into my DCF model. I have a DCF model, using a WACC, where I am trying to find the equity value. The answer I receive after the sum of present values and residual value would be my enterprise value. I now need to deduct Long Term Debt to get to an Equity Value. As I understand the Long Term Debt should consist of interest bearing debt that must be repaid. To me a Line of Credit will have to be repaid and accrues interest. Should the Line of Credit be included in LTD in my DCF model, or should it factor into changes in working capital? Many thanks this topic is confusing to me and I couldn't find a definitive answer.
28 Aug 2014
I'm building a DCF to value a company whose fiscal year ends December 31st. What is the industry accepted way of valuing the remaining year? Should I make a separate column for "Remaining 2013", come up with a free cash flow, and then use n=.25 to discount it? Should I use n=.125? Or should I come up with a free cash flow for 2013 and pretend that none of it has been realized, therefore discounting it at .5 (for the half year convention. I'm leaning towards the first option I mentioned but I have a feeling its not right.
16 Nov 2013
Hi guys, I need a help! i just finished building my dcf model. My boss asked me what is the IRR return? How can i calculate that? the purpose of my DCF model is to find out how much i should pay for that company. but i dont know how to figure the IRR return. is the Cost of the equity is the IRR return? or i should do a separate IRR analysis? if i need to do a separate IRR analysis, what is the input? should i just take the exit multiple times terminal ebitda? and using my current entry price to figure out the irr analysis? Thank you in advance.
11 Oct 2012
How should I treat short term debt in a dcf? I know this has been asked, but what changes in this instance is that the company I am valuating only has 50M in short-term debt; no LT debt. I know this isnt included in NWC, but where would I implement this in the model? What im doing is im getting the levered fcf since its only 1 interest expense and using cost of equity for the discount rate. Also, since the company Im valuating is in a growth industry, has been unstable lately, has a beta of 0.4, and only has 1 major competitor (cant use different betas), should I still be using CAPM for CoE? I
16 Jul 2015
fellow monkeys, im fairly new to valuation so please excuse if this question is actually really easy. i currently have to valuate an automobil supply company that is not publicly traded (and therefore does not have a beta?) and i was wondering how to calculate the WACC if you dont have a beta to estimate the cost of equity? do you just assume a certain percentage? thanks in advance, i appreciate it. cheers.
19 Jan 2013
When accounts receivable increases, you will be paying something in cash for that increase With accounts receivable, you have to record it as revenue on the income statement At this point you have NOT collected cash On the income statement, the recorded revenue WILL be taxed by the appropriate tax rate and that represents a "cash outflow" In A Nutshell: Since you have NOT collected cash, and you record A/R as Revenue on the Income Statement which is taxed and therefore represents a "cash outflow" Best The LA Bull
31 Dec 2014
Hey all, quick question about DCF valuation. If you're valuing a company right now (mid-2015), do you discount cash flows back to 2015, or do you account for the fact that it's the middle of the year? In other words, should you discount back to 2015.5? Thank you all in advance!
13 Jul 2015
I currently analyze the financial sector for St. Bonaventure University's Students in Money Management group. I'm running a valuation on First Niagara and am having trouble with the Dcf which I think is coming from crazy working capital projections I am getting because First Niagara has been acquiring HSBC assets for the last year causing big swings in their nwc. Any ideas on how to fix this problem?
03 Dec 2012
How do you find the rate of return on equity when you're looking at different financing options in a DCF. I know that the formula is net income/shareholder equity, but this isn't giving me different rates for the different financing options... Thanks for any input
01 May 2013
I have a project with an initial outlay (Year 0) and 10 years of forecasted positive FCFFs and FCFEs. After 10 years, I use a Gordon/Perpetuity Growth Model to determine Terminal Value. I built DCF model and discounted FCFFs with WACC (to arrive at Enterprise Value) and FCFEs with Cost of Equity (to arrive at equity value). While calculating the terminal value for both cases (FCFF and FCFE), I use perpetuity growth formula: CF10 * (1+g) / r-g where: CF10 = FCFF/FCFE of the Year 10; g = growth rate; r = discount rate (WACC for FCFF, Cost of Equity for FCFE). At the moment, I am trying to
08 Sep 2016
Is the cash available to start a company in the base year when calculating the value of the company using a discounted cash flows for the value of the company is currently
25 Mar 2012
hello im very new to finance ,and i've been trying to study a bit the DCF analysis can anyone enlight me on the differencies between: -entity approach -equity approach -adjusted present value approach thanks
16 Nov 2011
Might be the wrong section as its for a Private EQUITY gig however it more of an Investment Banking question. Bit of background. I was in Oil and Gas finance where the modelling is much different especially in assumptions where the data is much more streamlined and projections are worked on many times by engineers etc. And the discount rate is an industry standar 10% yada yada. Now the thing is.. I had a long interview at a PE firm (ME) today and I thought that would be the end of that and there had been no indiccation. But nI have a Modelling Test tomorrow. From what I can figure out they
22 Sep 2015
When someone makes financial estimates on the DCF input pages, what do they base those expectations off of? Economic factors mainly? Solely previous earnings?
06 Jul 2012
When modeling a DCF, I have always used both the Exit-EBITDA and Perpetuity Growth methods as a way to calculate terminal value. But, the more I think of the Exit-EBITDA multiple approach, and what it exactly is doing, I get sort of confused.
03 Sep 2013
Hello everybody, I am working on a valuation question I found in one of the popular interview guides. The question asks me to evaluate the impact on the DCF valuation from the purchase of a factory with $100 cash on year 4 My answer was not similar to the one I found on the guide so I would appreciate if anybody could point out the flaw in my thinking: - At year 4 I have Unlevered free cashflow UNCHANGED because Capex goes up by 100 but Change in NWC goes down by 100. so - 100 - (-100) = 0. - Assuming marginal tax rate 't', salv value = 0, useful life = 5 yr, then I have 5 tax shields on yrs 5 ... 9 each of which is 20*t. By discounting those 5 tax shields from depreciation using WACC I get the increase in DCF valuation.
31 Dec 2012
Hi Everyone, My friend currently works in PWM at a major firm as an Associate. He is basically an assistant but has learned a LOT about the industry. He has a second round interview with a global fund manager that services only institutional clients. Essentially he is making the switch from the retail side to the buy-side/institutional clients. The position title is 'Analyst, Global Investor Relations.' Obviously, most of the roles in IR would involve good communication skills, ability to multi task, etc. That is fine. However, he was told that on his second round, he would have to take a 2
08 Aug 2016
Hey Guys, Quick question on the DCF. After I have NOPAT and I add back D&A and changes to NWC, I was wondering if I need to subtract out just mtx. capex or growth capex as well including acquisitions? The firm that is being valued is very acquisitive and so my thinking is that if I assume its top line growth in the future will be aided by future acquisitions, I can't give the company a "free lunch" by not subtracting out this additional capex... but obviously, you can't assume the acquisitions will continue into perpetuity. Thoughts?
10 Jul 2015
I understand that it wouldn't make sense to use a private company in your calc of cost of eq or wacc BC private companies don't have values for market cap or beta, but why couldn't you use private companies in public comps? Is it just because it's literally called "public" comps? Thanks in advance
11 Nov 2015
Hi guys. This is a real case and there is a trial going on (in eastern Europe ), I would like some hints from you and maybe even some help based on International valuation standards. There are 2 companies: Company A has 21 mil cash in bank, that's all the assets. Company B has a hotel, a pool, some other PP&E and cash, very very low debt. Majority shareholders wanted for companies to go private. Some minority shareholders didn't want so they decided to get out. Now a valuation expert was employed to repay the minority shareholders whatever their equity was worth (that is a requirement from the law). Now the expert valued the companies using DCF and because both of them have low or almost none activity their value that was calculated was like half of their net assets.
17 Feb 2014
I perform several DCF analysis daily and have to make analysis aligned to my company's investment analysis proceeds. There is a rule that returns from reinvestment of exceeding cash flows should not be part of a DCF analysis. From my own research on this subject I found out that it is probably related to the concept that IRR obtained already considers the reinvestment of positive cash flows. Is this intepretation the most correct? If not, could you explain what are the other reasons? Thank you in advance.
31 Jul 2018
All, One of my interviews is requiring me to value a fictitious company. They give me the Income and Balance Sheet for Yr 1. Its a very basic statement with Sales, COGS, OPEX and NI and CASH, AR, INV, PPE, AP, and Debt. No Dep or Int They basically project out the income statement and capex for the next 2yrs. They also require debt to equity to be maintained. I've projected working capital to grow with sales. I need to also include a CF statement, so my balance sheet is dictated by all of their assumptions (except working capital). Right now assets are -10M less than L+E. I'm not sure where I'm going wrong, if I adjust my debt down my cash goes down and into the negative.
15 Feb 2012
So far, we've learned the basics of DCF's and all the concepts behind them. However, this is my first time in a higher level finance class that requires us to build a full model for a private company. Although I've done quick models where the information was all given to us, I've been completely overwhelmed with gathering the relevant information from the gigantic variety of sources and making sense of everything Since I have a SA role coming up, what are the processes for actual DCF modeling at actual investment banks. What information are we expected to generate on our own, and how do you go
25 Mar 2017
Hello Monkeys, Can anyone provide some insights on how to find the cost of debt for a firm and the target capital structure. Cost of debt is the interest rate to borrow. However, a company may have all kinds of liabilities with different rates. How do you find the cost of debt? Rosenhaum's guide states that usually the optimal capital structure is used. However, how do I determine the optimal capital structure? Thanks in advance
14 May 2014
Instead of using a Midyear Adjustment factor, does anyone utilize a exponential function? If so, does it drastically produce a different result from a basic midyear adjustment? I am assuming not or it would be used more often right? Thanks in advance for the information.
19 Sep 2012
Hi fellow monkeys, At my summer internship, I was asked to recreate DCFs of certain companies that other investment bankers had already done for shareholder litigation purposes. I never asked them why I was doing this, but I did hear the associates say that they were surprised by the previous investment bankers' models. Is it a normal thing for investment bankers to recreate other investment bankers' models to make sure they did not make any obvious mistakes? Thank you.
14 Sep 2015
Does anyone have experience in analyzing or valuing companies operating in the online real-time advertising industry? I feel like the industry is very different from normal retailers etc and I have very limited experience in this space. So what are some of the key considerations I should be aware of or keep in mind when I try to analyze or value one of these companies? An example of a company like this is Rubicon (NYSE:RUBI). I will try to find some broker reports etc on this company but meanwhile, if anyone has some good insights, it would be much appreciated!
29 Apr 2015
Hello Monkeys, I'm wondering how to accurately forecast FCF. Investment Banking by Rosenhaum suggests that we project future sales and use that as a reference to calculate other elements of the FCF. It seems a little bit too simple to apply to all kinds of firms. My question is, what kind of things should I beware of when I project FCF for a firm so that my projection is as accurate as possible? Thanks.
06 May 2014
If a company is paying off a significant amount of debt one year, how would you account for this in a DCF? Or would you at all? M&I gives such a confusing answer to this question so I am totally lost.. Thank you for all the help
15 Nov 2015