DCF Builder
A discounted cash flow valuation, built the way it is built at a desk: forecast the cash the business throws off, put a value on everything after the forecast, discount it all back to today, walk from enterprise value to equity, and divide by the shares. Six steps, each checked as you go, with room for the rounding that hand arithmetic needs.
The forward companion to the Reverse DCF. That lab starts from a share price and asks what growth it assumes; this one starts from the drivers and ends at a price, then puts it next to the market’s.
Work down in order. Each step checks against the arithmetic with about 3% of room, because you are compounding and discounting by hand and the rounding adds up.
Forecast unlevered free cash flow
Start from revenue and walk down to the cash the whole business generates before anyone who funds it is paid: EBIT after tax, add back D&A, take off capex and the working capital that growth ties up.
Value everything after year 5
Five years of forecast, then one number for the rest of time. Two ways to get it, and they should roughly agree.
Discount to today
A dollar in year 5 is worth less than a dollar now. Each cash flow is divided by (1 + WACC) raised to its year, end-of-year convention.
Enterprise value
Add the two, then ask how much of the answer is the forecast and how much is the assumption about forever.
From enterprise value to equity value
EV belongs to everyone who funds the business. Take out the claims that rank ahead of shareholders, add back what the company owns outside the operations.
Implied share price
Divide by every share that would exist if the in-the-money options were exercised, then put the answer next to where the shares trade.
Keep going
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