Discounted Cash Flow Analysis _ Street Of Walls

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1、2016/1/21DiscountedCashFlowAnalysis

2、StreetOfWallsSTREETOFWALLSARTICLESTRAININGUpdate:FindajobyouloveatVetteryDISCOUNTEDCASHFLOWANALYSISofInvestmentBankingTechnicalTrainingInthisDiscountedCashFlowchapter,wewillcoverfourkeytopics:DiscountedCashFlow(DCF)OverviewFreeCashFl

3、owTerminalValueWACC(WeightedAverageCostofCapital)DiscountedCashFlow(DCF)OverviewWHATISDCF?DCFisadirectvaluationtechniquethatvaluesacompanybyprojectingitsfuturecashflowsandthenusingtheNetPresentValue(NPV)methodtovaluethosecashflows.InaDCFanalysis,thecashflowsareprojecte

4、dbyusingaseriesofassumptionsabouthowthebusinesswillperforminthefuture,andthenforecastinghowthisbusinessperformancetranslatesintothecashflowgeneratedbythebusiness—theonethinginvestorscarethemostabout.NPVissimplyamathematicaltechniquefortranslatingeachoftheseprojectedann

5、ualcashflowamountsintotodayequivalentamountssothateachyear’sprojectedcashflowscanbesummedupincomparable,currentdollaramounts.WHYUSEDCF?DCFshouldbeusedinmanycasesbecauseitattemptstomeasurethevaluecreatedbyabusinessdirectlyandprecisely.Itisthusthemosttheoreticallycorrect

6、valuationmethodavailable:thevalueofafirmultimatelyderivesfromtheinherentvalueofitsfuturecashflowstoitsstakeholders.http://www.streetofwalls.com/finance-training-courses/investment-banking-technical-training/discounted-cash-flow-analysis/1/212016/1/21DiscountedCashFlowA

7、nalysis

8、StreetOfWallsDCFisprobablythemostbroadlyusedvaluationtechnique,simplybecauseofitstheoreticalunderpinningsanditsabilitytobeusedinalmostallscenarios.DCFisusedbyInvestmentBankers,InternalCorporateFinanceandBusinessDevelopmentprofessionals,andAcademics.However,DCFi

9、sfraughtwithpotentialperils.Thevaluationobtainedisverysensitivetoalargenumberofassumptions/forecasts,andcanthereforevaryoverawiderange.Ifevenonekeyassumptionisoffsignificantly,itcanleadtoawildlydifferentvaluation.Thisisquitepossible,giventhatDCFinvolvespredictingfuture

10、events(forecasting),andeventhebestforecasterswillgenerallybeoffbysomeamount.Thisleadstotheconceptof“Garbagein=Garbage