Discounted Cash Flow (DCF) and Absolute Valuation Techniques

Explore absolute valuation techniques and the discounted cash flow method, focusing on fundamentals, dividends, cash flows, growth, and intrinsic value independent of peers.

Learn how absolute valuation techniques determine a company's value, including the discounted dividend model, asset-backed methods, and going-concern versus liquidation values, culminating in the discounted cash flow approach.

Explore relative valuation using comps and comparable transactions to benchmark a company against peers, guided by the law of one price, applying EV/EBITDA and PE multiples.

Apply the discounted cash flow method to estimate a company's value by discounting future free cash flows to the present and comparing with market price per diluted share.

Understand how the dcf method projects unlevered free cash flows and terminal value. Discount them to present value using the weighted average cost of capital or cost of equity.

Understand how discounted cash flow valuation ties higher end of year cash flows to greater company value. See how higher discount rates reduce value and how terminal value captures perpetuity.

Learn to value a company using discounted cash flow with a terminal value; project cash flows for a finite period, apply a stable growth rate, and discount to present value.

Apply dcf as an intrinsic valuation method with cash flows discounted at an appropriately determined rate. Use unlevered cash flow discounted at wacc for enterprise value, or levered cash flow discounted at cost of equity for equity value.

Relate equity value to enterprise value and explain fcfe vs fcff, showing both yield the same value under the same assumptions when discounted at cost of equity or wacc.

Understand the accounting equation, assets equal liabilities plus equity, and analyze how asset purchases, inventory changes, and revenue affect retained earnings.

Learn how discounted cash flow yields intrinsic value by focusing on cash flows and fundamentals, with flexible assumptions and the ability to complement comps and LBO analyses.

Compare DCF and comps, showing DCF's intrinsic valuation and synergy inclusion as more academically respected, despite garbage in, garbage out and terminal-value sensitivity, versus comps' speed for investors.

Master the steps of DCF: predict cash flows, apply growth, estimate terminal value, choose a discount rate, and discount to present value to derive enterprise and equity value.

Explore how to forecast free cash flow for a mature company like Siemens, separating fcff and fcf to equity through working capital and capex, debt, and dividend decisions.

Explore valuing a firm with fcff, derive enterprise value and equity value, and compute fcff from net income using depreciation, after-tax interest, and net capex.

Calculate cash flows by adjusting CapEx with asset sale proceeds and working capital, then derive CFO and FCFE using indirect methods and related formulas.

Compare forecasting methods for free cash flows: growth-rate projections versus predicting underlying line-item drivers like revenue and net income; prioritize the granular, line-item approach for accuracy.

Predict Siemens cash flows with a linked Excel model that uses color-coded inputs, links share price data, and applies the nopat-based cash flow formula including working capital changes and capex.

Case study explains forecasting cash flows by calculating depreciation and amortization, nopat, and cfo, then deriving fcfe with consistent sign conventions in a simple spreadsheet.

Learn to predict terminal value under going concern by using multi-stage growth, then apply stable growth, multiples, or liquidation value, with sensitivity to growth assumptions.

Learn four terminal value methods in dcf and absolute valuation: Gordon growth, multiples, book-value liquidation, and liquidation of after-tax cash flows. See how growth rate assumptions drive value sensitivity.

Compute terminal value with the Gordon growth method, and compare three growth-rate methods—retention rate times ROE, historical/stable growth, and risk-free rate—highlighting DCF sensitivity, GDP constraints, and possible negative growth.

Learn how discount factors convert future cash flows into present value using the cost of capital and WACC, and calculate terminal value with perpetuity and exit EBITDA multiple approaches.

Learners build a dcf model by estimating growth and terminal value using fcf next year over wacc minus g, and EBITDA multiples to confirm enterprise value and derive equity value.

Compute net debt from the 10-K or 10-Q by adding cash and cash equivalents and available for sale financial assets to long-term debt and short-term debt, including convertible debt.

Estimate the discount rate with the WACC framework, compute after-tax cost of debt via tax shield and yield to maturity, and relate debt and equity risk to firm valuation.

Explore methods to estimate the cost of debt using synthetic ratings and default spreads derived from interest coverage ratios and risk-free rates, accounting for tax effects.

Estimate the cost of equity using the build up method and Capm, incorporating the risk-free rate, market risk premium, size premium, and Gordon growth formula.

Understand beta as a measure of systematic risk and stock volatility relative to the market in CAPM, and learn its determinants: business cyclicality, operating and financial leverage, with examples.

Explain why regression beta is unreliable and show deriving levered and unlevered betas from industry averages. Then relevering for firm debt, followed by market-value weights and wacc for dcf valuation.

Finalize the case study by calculating fair value per share from enterprise value and net debt, adjusting diluted shares via the treasury stock method and CAPM with levered beta.

Analyze how growth rate and wacc affect per-share value through a sensitivity table, using Excel data tables and conditional formatting to highlight buy signals for the pitchbook.

Understand how to incorporate preferred stocks into discounted cash flow analysis, adjust WACC, and compute cost of equity with CAPM, while evaluating limitations and using football field analysis for valuation.

Learn common interview questions for investment banking and equity research, including cost of equity vs debt, a discounted cash flow model, and weighted average cost of capital and beta.