Hi! Apologies in advance for the noob question. How do you treat/value convertibles (e.g. convertible preferred shares, convertible notes) in a DCF for a private company to derive price per share? The issue is that the fair value of the convertibles depends on the share price. Since it is a private company, there is no observable market price. How to solve this issue? Thank you for your help!
15 Jul 2020
I'm hurriedly on a valuation piece for a small tech / app entity (bolt on to human capital... pretty unique) using dcf and comparables and I'm pretty lost on what to do. I have a huge discrepancy in valuation: 10MM GBP (comparables/transactional) vs 50MM GBP per dcf which looks ridiculous but I'm pretty sure there aren't errors in terms of computations. Any excuses to give as to possibly justify this thing a little? Any other methods of valuation metrics that you guys use on a small, tech recruitment AI that is not precluded by the negative EBITDA / NI? Thanks everyone!
29 Mar 2019
I skimmed an ER report from Bank of America today on Beyond Meat (BYND) and I saw that, whatever the assumptions regarding revenue, etc., in order to get a price target marginally above the (then) current market price, the analyst used a terminal growth of 5%, which would be a bit on the high side under normal circumstances, but given that there are serious recession concerns in the near future, the idea of 5% growth forever seems kind of out there. Additionally, the analyst forecasts sales out to FY2029 based on assumptions that seem ridiculous because there are SO MANY potential variables
15 Aug 2019
Two DCF questions: 1) when using the terminal multiple method, your taking a multiple (EBIT/EBITDA, etc) multiplied by the metric itse Hope that makes sense- thanks in advance
17 Aug 2020
Hello! Really hoping for advice here. I can't figure out for the life of me why I'm getting a negative implied perpetual FCF growth rate. I'm a new user so I can't link the spreadsheet or send screenshots but any guidance would be great!
30 Jun 2019
Hi everyone, I am computing the WC amount needed to adjust the EV. | Net Working Capital, per last balance sheet available: -665k | Average NWC, last 12 months: -797k ...this returns NWC surplus of 132k. Can anyone possibly explain why both are negative and how I can reflect this before adding the 'surplus' of 132k onto EV as an adjustment? Sector of the firm is within Human Capital. Cheers
17 May 2019
Doing a 3 statement model with DCF attached. When revenue growth is 0, or even -40 or -70% as opposed to 5% or 20% etc - cash flows actually increase? when the business has high revenue growth the cash flows actually go negative! I presume this is due to how I have driven it, any fixes? this seems odd? Or is it ok? The increase seems to be due to changes in NWC & capex / D&A. Revenue is driven off pure growth as %. COGS backed into from gross profit margin. SG&A from SG&A margin. NWC is either driven as % sales, or broken out & done as DSO, DPO & Inventory turnover. Capex is % revenue, D&A is
09 Jan 2019
Hey all, (values in millions) Did a valuation for a tech company and I came to an enterprise value of $1,231 (in millions) of unlevered cash flows. I added back cash in year 0, thus giving me asset value in year 0 of 1,311.I subtracted debt today which is 320 and got to an equity value of 991. As im new to valuation I am confused on the following issues: 1) If I want to acquire this firm, do I acquire on the equity value or asset value? 2) How is it rational that if I buy the company at equity value, I would own it debt free and id get it at a lower price (991 < 1311)?
25 May 2017
What technics/approaches/methods are used in IB houses to do due dilligence valuation? other than DCF and multiples? do you do all of these then average the results?
26 Jun 2019
Why use EBITDA for multiples but FCF for DCFs when EBITDA is a proxy for FCF? Could you use EBITDA for a DCF as well then?
08 Aug 2020
I need a little guidance here. I am valuing a Japanese robotics manufacturer. I have no trouble forecasting operating free cash flow to firm, calculating terminal value, discounting, and getting the intrinsic enterprise value today. That part is done. Below is what puzzles me. That company is a cash hoarder, with no debt on the balance sheet. In fact, they are sitting on a large portfolio of investment securities. So here is a question: do I need to value those securities separately and add them to the enterprise value I calculated above? The reason I am hesitant is that EV reflects the value
16 May 2020
Hi Guys, So I'm caught in a bit of a dilemma. I am coming from a non-target school, graduating in a couple of weeks with Finance degree, 1st gen college student. Didn't do BB summer internship, but I went overseas and worked at a 2B+ hedgefund as an equity analyst for summer internship (they only hire CFA charterholders for analyst positions unfortunately) I happen to be in a very affluent town that has a lot of ppl in finance who tried to help me, but most BB fill the 1st yrs with summer analyst positions. So I'm not worried about the networking...I am interested working in Equity Research
12 May 2017
Hi! I was wondering whether you could help on the following question. When using DCFF method, you end up with the EV. Most DCF templates then substract the net debt to derive the Equity Value. However, when using other methods, such as EBITDA multiples, we tend to perform further adjustments (related to minorities, provisions, etc.) before getting to the Equity Value. Would it make sense to perform this full range of "equity bridge adjustments" when getting the EV from a DCF? Appreciate your help. Thanks!
14 Apr 2020
Hi, all - Working on a valuation in which we're using end-of-year discounting. FYE June 30, but client wants to know what portion of value is attributable to a period ending in October. Director insists on an annual forecast. How would you go about discounting the period that's getting split? Example Forecast Periods: FYE 6/30/20 FYE 6/30/21 FYE 6/30/22 FYE 6/30/23 (to be split into Period 7/1/22-10/31/22 and Period 11/1/22-6/30/23) FYE 6/30/24 FYE 6/30/25 Would it be an oversimplification to prorate the split period's PV? Any other ideas?
20 Mar 2020
I've been trying to figure out why my balance sheet doesn't balance for the last 4 hours. All years are off by the same exact number. Can someone please help?! PM and I'll email the model - I can't figure out how to post the xsl. to the forum... Any help would be greatly appreciated!
18 May 2019
So to forecast balance sheet items you would calculate the DSO and AP cycle and then adjust/keep it the same in the future. The formula that I am familiar with is AR/Revenue * 365/360. But that is for annual forecasting, for the monthly forecast (or quarterly) do you just multiply by 30 (or 90)?
14 Jan 2020
For dcf valuation, it's my understanding that I will reach a fair value of the stock If I want to achieve a 1-year target price, do i need to discount the future cash flow to one year from now or do I just multiple the fair value by a growth rate? Thanks!
21 Jul 2017
Would appreciate any help on this! I am making a DCF for a Company and I am running into an issue with the value. The company has very high historical CapEx, for example 2017 EBITDA was $5.8bn and CapEx was $5.6bn, as a result of this the free-cash flow is very small. In my projection period, a similar thing happens - some years have negative FCF while others just have very small FCF. As a result of this, all the value of my DCF is being derived from the terminal value, where I used a multiple of 10x (mean of comps). I am wondering if this is correct, or should I not even use a DCF for a
12 Feb 2018
Hey all, I have decided to take start learning about valuation and the like, and want to know every ones favorite book on it. The main ones I am looking at are: Rosenbaum and Pearl Damodaran McKinsey Thanks!
04 Jan 2016
Hey all, I am writing today seeking help to clear some confusion I have about valuation. It appears that I know the formulas, but I am interpreting the numbers incorrectly, or in fact I cannot explain what is going on or why things are as they are. I would like to start by telling you how I find FCFF and then I want to tell you how I interpret it, how the dictionary interprets it, and why I don't seem to find commonality between the definitions. Alright here I go: FCF => Profit after tax + Depreciation - Increase in current assets + Increase in current liabilities - Increase in fixed assets at
25 May 2017
So I interned at a small regional boutique this summer and I am now recruiting from a target school for IB as a rising junior. I have a bullet point on my resume about helping the junior deal team help build a DCF and this analyst I was speaking with at a BB bank (over the phone) asked me if I could go a little more in-depth with my answer. I'll give my answer then explain what he said after: I explained we were working on a sell-side M&A deal for an automotive aftermarket client. I told him we were given their 2017 estimates, but I also had their Actual YTD April monthly P&L statements and
23 Aug 2017
Hello WSO, I'm considering going the route of valuation analyst/certified general appraiser and was wondering what the exit opportunities there are? Or is this career pigeonholed quickly? Also, what's the typical career path of this route? Thank you in advance for the help.
11 Apr 2018
Accounts receivables increase by $100 (tax 40%) How will it impact on FCFF/FCFE? Will it decrease by 100? Or by 40? My thought: in case of increasing AR we recognize revenue in IS, So revenue is up by 100, Net income is up by 60 In CFS we substract AR, so CFO is down by 40 -> FCFF/FCFE down by 40? Am I wrong?
01 Feb 2017
Hello, I'm wondering if we should consider the multiple => NI to common without tax shield / Equity value, => instead of NI to Common including tax shield / Equity Value (which is more traditional = easily comparable to market data) My reasoning: When using an implied multiple, to get an apple-to-apple comparison, we should have: - a numerator excluding a value (e.g. financial interest) and a denominator including it (e.g. debt) => EBITDA (excludes fin interest) / Enterprise value (includes financial debt) - a numerator including a value (e.g. financial interest) and a denominator excluding it
22 Jun 2017
Hi guys, i'm preparing myself for the upcoming interviews (ibd) and my major is engineering, so i'll have to learn by myself valuation and accounting mostly, what do you guys recommend me to do? damodaran? biws? Wallstreet prep? have also heard of investment banking from joshua and joshua. Also, if you know ib interviews more than i do and feel like there is another subject i have to learn to ace the interview, please tell me. Thank you all!
16 Oct 2015
Hi, I am using DCF/freecashflow to value two projects/firms. Both firms have no reinvestment needs and all cashflows are equal except that the first one pays out as dividends all the cash it earns. The second firm retains all the earnings in the banks and earns interest income on it. The value of the interest income makes the second firm more valuable using the free cash flow approach (as dividends are ignored but interest income is added). However, this seems counter intuitive as would be better to distribute the excess cash in dividends. If anyone can help in my understanding.
21 Feb 2017
So I did a Facebook DCF, and getting a very high stock price of $174.52. Can someone maybe comment if this is correct? Seems a little high for me, so I am not sure what I am supposed to fix to make it lower and more reasonable. Edit (1): I fixed it again, and it is at 168 now. Not sure if this is still a little high. Edit (2): fixed the "terrible" formatting. Any suggestions would help!
31 May 2016
So I'm trying to value a weird, very niche investment. Can't go into details, sorry, but I hope my question below is self-explanatory. Imagine a 20-year investment which gives a company guaranteed, risk-free returns but only if the company has taxable profits. These returns are in the form of cash flows, and you get a majority of your investment back within 2-3 years. The rest of the cash flows are spread out over the 20-year period. What discount rate would you use to value these cash flows?
11 Aug 2017
Hi All. So I know that in a DCF you use comps multiple average as the terminal multiple for your modelling target. I'm just wondering if we should use forward-looking multiples or current multiples? If we use forward-looking, should we use the one after 5 years to match with the time that DCF projects? Thanks.
22 Aug 2016
I am trying to do a company comparable analysis for a pre-packaged software company with a market cap of 3 mln usd. It's operations are worldwide (Europe, Latin America, US). I am trying to find comparable companies for it. My questions are: 1. Is it ok to use SIC numbers as a main indicator to find comparable companies? 2. Is it possible to compare a 100 mln usd market cap company to 3 mln usd market cap company in absence of other competitors? 3. What about using a Frankfurt-based company with a similar market cap and geography for consumers? What is the best approach to find the comparables
13 Jun 2016
Would really appreciate some help on this as I am struggling with a special project I got staffed on... How would one go around valuing a business that has a portion of its revenue stream from subscriptions to a product (bring in a monthly constant revenue per unit), and the rest from one time charges upon sale? It seems that for purely subscription-based businesses, such as B2B Saas, using a revenue multiple is preferred and captures the value better. Ideally, I would want to use a revenue multiple for the subscription chunk of the business, and use any other standard valuation method such as
26 Dec 2018
Question in title, companies liked Aetna, Cigna, etc. What multiples should be used? P/E, P/B, PEG, not EV/EBITDA, are ones that I know, are there any industry specific multiples I should use?
23 Jan 2016
Monkeys, I'm doing a practice DCF on my own and need to calculate the required return on equity. Checked out the journal and US 10 Years are hovering around 2.9%. What's a good market return rate to use (I'm valuing a specialty/discount retail chain) so I can calculate my MRP? Is a 10% expected market return about right for today's conditions? This would give me a 7.1% MRP, which I feel is way too high. Is there a standard market return that you guys use to calculate MRP? I heard a 7% market return is a safe historical rate to use. Anything helps.
17 Jun 2018
I need to create a bridge/waterfall between two valuations (old estimates vs. new estimate) to explain what changed in the new forecast. In other words, I have valuated a company using one forecast that resulted in, lets say, 1bn and a second valuation of the same company but with an updated forecast that resulted in, lets say, 1.5bn. How would I do this, what categories should I look at? I am think to show the change in revenue, working capital ,capex, opex etc in absolute terms or should I try to look and see what the impact of changes in gross margin and/or EBITDA margin etc? Any suggestion
30 Jan 2016
I don't understand exactly why one would add 0.5 to the final year discount number for the multiples method, but would leave the gordon growth method's final year discount number as is..
29 Oct 2015
Hey guys, I'm currently doing a valuation of a company trading in an emerging market country, and the market is really underdeveloped and illiquid. My question is, due to this being a systematic risk for the entire country, is it inherently included in the Market Risk Premium, meaning higher cost of equity, which leads to a higher WACC, or do I do the entire DCF, and in the end apply a discount similar to a minority interest discount. Thanks
04 Apr 2019
Hi Guys, I am valuing a company that drives its growth through acquisitions. Think something like Salesforce in my case. I have built out a financial model but a bit perplexed as to how do I factor in future acquisitions. The way I look at this, is that even in a pure stock-for-stock acquisition, it is a subtraction from today's shareholders (before we take into account the value of the target) in a very similar way that developing the same asset internally is. In that latter case, you subtract CAPEX from cash flow to arrive at FCFF. In the former case, you dilute existing shareholders when
23 May 2020
1) Would you use a ten year or a 20 year projection period for a DCF for a commodity company? *I was thinking since commodity companies can be cyclical industries, a longer forecast period could make sense... but I've never heard of a 20 year DCF before. and 2) Would you use debt from the balance sheet or from the cash flow from financing section to calculate EV? Would the cash flow statement debt provide more time sensitivity? Thank you in advance.
16 Nov 2019
What come first in your mind after reading this question ? What influence has the ECB policy on the valuation process ? (focus on the banking and insurance company sector) What I need to research to find any impact ? I will be very grateful if you can help me
13 Nov 2019
Effective tax rate is plugged into DCF to calculate nopat, fcf and proceeds to npv. If the local tax rate is already within the concept of dcf, when the firm eventually adheres to that value range and sell, does that not mean that the firm has been double taxed? What is the concept of this tax rate in computation on nopat if this is not the case? Just moved from valuation to m&a - would appreciate all feedback on above. Thanks a lot.
09 Jan 2020
Anyone know what kind of questions are asked at interviews. Specifically looking to know what accounting questions are most examined. Of course, realize that you need to have well thought out pitches and that you might have to do a case study etc. Not talking about that, asking about the technical that you would be asked. Thanks in advance
03 Nov 2015
A family friend has offered me an unpaid internship in vessel valuation. I will be relying a lot on using dcf modelling to value ships, fleets and companies. I will also be researching how other deals in the market affect valuations. Alongside this I will be working with quants and academics on producing complex mathematical models. The problem is that is internship will cost a lot in terms of travel. My long term aim is to break into Investment Banking. Will this internship be worth it?
06 Feb 2017
I am responsible for collecting data that is going to be used for the research held by The Kazakh-German University in Almaty. If you know anything about DCF, then your participation will be extremely useful! This research questionnaire has 10 questions. Data will be used only for research purposes. Please, answer the questions in the comments below, it won't take more than 2 minutes. How most analysts value a company? * Must have What is your valuation experience? * 1. Less than 1 year 2. 1 - 3 years 3. 3 - 10 years 4. More than 10 years 5. No experience What type of company do your work with
13 Oct 2018
Hey monkeys. Did a DCF/RV valuation of a middle-market mixed retailer for my M.Sc. dissertation, and played it by the book (think the usual cap. op. leases, bottom-up beta, comps and so on). Have to defend it for 45 min. in two days, and looking for interesting things to discuss (alternative methods/perspectives), that aren't the usual riskfree rate & opt. cap. structure, to make the presentation less generic (boring) for examiner, who's an MD at a BB (dont know why tf he's an examiner?!). You guys have any ideas of how to impress this dude?
19 Aug 2019
Hi I'm trying to learn to model by creating my own based off a template and understanding the ins and outs. I'm currently looking at a company that has 3 quarters released. Do I project the last quarter and sum up all quarters to get the whole year? What am I basing my projections on? Sorry for noob question just trying to learn.
27 Jun 2018
I've been trying to figure out why my balance sheet doesn't balance for the last 4 hours. All years are off by the same exact number. Can someone please help?! PM and I'll email the model - I can't figure out how to post the xsl. to the forum... Any help would be greatly appreciated!
18 May 2019
Hi, I am doing a DCF valuation of private company for a investor, who wants to fund a target requiring funds for future Capital investments. My query is whether I should value the company based on future cash flows of existing assets or should i include the cash flows from existing as well as new assets which would be created from the funds of new investor? My view point- free cash flows should only be calculated from existing assets as growth from new Capex should be shared with new investor as well as founder. Please provide your view points on this . Any additional literature would be
06 Aug 2017
Hi guys, a short question. How would you adjust DCF if I want to arrive at a valuation as of end June 2019? Assuming that roughly half of this year's FCF will already be realized at that date, should I only consider half of the 2019 FCF in my valuation? Moreover, I should then discount it only by 6 months, shouldn't I? Thanks! Adam
21 Mar 2019
I understand that for EV/EBITDA to make sense, EV should include the minority interest of company B because EBITDA includes it because of the consolidated statments. But what if we are not using EV in a multiple and we just want to know its value, would't it be wrong to add a minority interest that it does not own? Which is the reason to add it?
12 Mar 2019
Hi Everyone, I am interviewing at a VC firm an India and had a case question regarding DCFs for a startup. While I understand that the DCF method is tricky and possibly not the best idea for valuing a startup, company law in India dictates that the method be used. So my question is this: the company is in it's first year and its cash flow is currently negative (and is projected to be negative for the next four years). It is expecting equity infusions 6 months from now and another round in a year. I am trying to find the price per share. I have forecasted future cash flows under the assumption
10 Nov 2015
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