Build a DCF Valuation Model

Value a business using discounted cash flow by defining operating cash flows after reinvestments, discounting them to present value at a risk-reflective rate, and applying multi-stage and perpetuity formulas.

Build a two-stage DCF model with an explicit five-year forecast and a perpetual growth stage. Learn to compute present values, terminal value, and how to apply a discount rate.

Compare discounted cash flow and comps-based valuation using multiples, illustrated by a hotdog stand example and a peer group mean of 26x to reconcile 273k and 323k values.

Compare the dcf and comps, noting that the dcf is widely used, academically respected, and market-independent, but faces controversial cost of capital estimates and high sensitivity.

Explore the differences between unlevel and lever DCF models, valuing enterprise value versus equity, using EBIT, tax effects, and WACC to forecast cash flows for all providers of capital.

Explain the difference between unlevered and levered dcf: unlevered cash flows yield enterprise value with the wacc, while levered cash flows yield equity value with the cost of equity.

Build a two-stage dcf model by forecasting explicit free cash flows for five to ten years and calculating the terminal value, then derive enterprise and equity value.

Begin a discounted cash flow modeling exercise for Apple using a fully integrated three-statement forecast to build stage one unleveraged free cash flow in the valuation tab.

Model unlevered free cash flows from EBIT with a no-debt tax effect, then convert to cash from operations by adding back depreciation and working capital while subtracting capital expenditures.

Model unlevered free cash flows by accounting for reinvestments, capital expenditures, and intangible asset purchases, then discount them to present value with a two-stage dcf.

Explain modeling the terminal value in a dcf using perpetuity approach, deriving terminal value from next year's unlevered free cash flow divided by the discount rate minus long-term growth rate.

Explain the exit multiple method for terminal value, using last twelve months ebitda times an ev/ebitda multiple from trading or transaction comps, instead of growth in perpetuity.

Model the terminal value in a DCF using exit multiples, comparing perpetuity growth to the current EBITDA-based multiple. Use a comps analysis to derive a peer-based multiple and apply it.

Subtract net debt from enterprise value using latest book values from the 10-q or 10-k to derive equity value, accounting for debt components, non-controlling interest, and cash.

Compute equity value by subtracting net debt from enterprise value, noting Apple's cash and marketable securities yield a negative net debt and an equity value near $750 billion.

Model trapped cash in Apple within the DCF framework, considering repatriation tax risk of 18.4 billion and the permanently reinvested status that reduces the equity value.

Learn how to compute diluted shares for a DCF valuation by applying the treasury stock method to stock options, updating the basic share count, and evaluating potentially dilutive securities.

Assess dilutive securities on the balance sheet, focusing on RSUs; vested RSUs add to basic shares, unvested RSUs remain non-dilutive, guiding the DCF equity value per share.

Learn how diluted shares outstanding, not basic shares, set market cap by incorporating options, warrants, and convertible securities, and how conversion affects per-share value.

Identify the latest outstanding share count from 10-K/10-Q, distinguish exercisable options (in-the-money) from those not, and apply the treasury stock method for diluted shares in standalone and M&A analyses.

Understand how stock splits alter share count and market cap, and why confirm no split after financial reports; learn about dual classes and voting rights with Google as an example.

Explore how convertible preferred stock affects diluted shares outstanding by applying the money test and the dilutive versus anti-dilutive test, using conversion price, redemption value, and preferred dividends.

Examine whether 2.4 million Coalgate convertible preferred shares should be included in diluted EPS in 2010, using the 8-to-1 conversion, $65 redemption, and in-the-money and anti-dilution tests.

Assess the treatment of restricted stock in diluted shares outstanding alongside stock options, including vesting, illiquidity discounts, and the potential impact on market cap and enterprise value.

Explain how the weighted average cost of capital combines debt and equity costs, including tax shields, market versus book debt values, and yield concepts, for both public and private companies.

Estimate the cost of equity using the capital asset pricing model by starting with the risk-free rate and adding beta and equity risk premium for market risk.

Learn to estimate the WACC using risk-free rate proxies like the 10-year government bond, and apply equity risk premium plus small-cap and country risk premiums.

Analyze how beta shapes the cost of equity in the WACC, with higher betas boosting required returns and assets with zero or negative betas reflecting different market sensitivity.

Compute Apple's WACC by integrating debt at 2 percent, a 26 percent tax rate, and CAPM-based cost of equity, then refine the model.

Explore a sensitivity analysis around terminal value calculations by comparing perpetuity and exit multiple approaches, then back out the implied perpetual growth rate from each method.

Explore sensitivity analysis in a DCF valuation, adjusting long-term growth rate and weighted average cost of capital to reveal fair value per share ranges, using data tables and exit multiples.

Learn to construct a football field valuation chart from a DCF and comps analysis, using dynamic row headers, sensitivity ranges, and data labels in Excel to visualize valuation ranges.

Compute the last twelve months ltm EBITDA from the latest 10-q, adjust for stock-based compensation and d&a, and build a football field to derive ltm multiples.

Apply mid-year discounting in a DCF by adjusting cash flows to reflect year-to-year timing, affecting stage one value and terminal value under perpetuity and exit-multiple methods.

Normalize the final year of stage 1 by aligning capex with depreciation and removing distortions from working capital and deferred taxes to reflect sustainable long-term growth.

Learn to model normalized terminal year free cash flows by aligning capex, depreciation, and working capital, excluding deferred taxes, to create a sustainable, multistage dcf.

Understand industry beta concepts by de-levering and re-levering peer betas to a target capital structure, addressing historical beta flaws and improving private and public company valuations.

Compute the private drugstore's delivered beta by de-levering Walgreens, CVS, and Rite Aid data with a 37% tax rate, then re-lever it to the private company's capital structure.

Apply industry beta modeling within the Apple DCF using a peer group of Microsoft, Google, and Amazon, including Apple, to deliver betas and adjust the whac-driven cost of capital.