Scribd
Upload
391 views

Case Studies and Problems On DCF

The Discounted Cash Flow (DCF) method uses projections of future free cash flows discounted at the weighted average cost of capital to value a business. It can value either the firm as a whole using free cash flows to the firm, or just the equity using free cash flows to equity. Key steps include projecting free cash flows, selecting an appropriate discount rate using the Capital Asset Pricing Model, applying a terminal value, and conducting sensitivity analysis. Case studies demonstrated applying the DCF method to value different companies. The DCF method is useful for estimating intrinsic value as it relies on cash flows and allows for scenario analysis.

Uploaded by

Viddhi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
391 views

Case Studies and Problems On DCF

The Discounted Cash Flow (DCF) method uses projections of future free cash flows discounted at the weighted average cost of capital to value a business. It can value either the firm as a whole using free cash flows to the firm, or just the equity using free cash flows to equity. Key steps include projecting free cash flows, selecting an appropriate discount rate using the Capital Asset Pricing Model, applying a terminal value, and conducting sensitivity analysis. Case studies demonstrated applying the DCF method to value different companies. The DCF method is useful for estimating intrinsic value as it relies on cash flows and allows for scenario analysis.

Uploaded by

Viddhi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 16

Discounted Cash

Flow Method
(DCF) – Quick
Guide and Case
Studies
Free Cash Flow

Free Cash Flows to Firm (FCFF) vs. Free Cash Flows to Equity (FCFE)

Various Discount Rate

terminologies
Explicit Period
used in DCF
method Terminal Value

DLOM, DLOC, Control Premium

Beta vs Alpha
Key Steps in DCF Valuation
Projections – FCFE vs. FCFF
Free Cash Flows to Equity Free Cash Flows to Firm
• For valuation of equity stake in business • Value of firm for all the stakeholders –
lenders and equity investors
• Based on expected cash flows – net of all
• Business Value independent of the
outflows, including tax, interest and
principal payments, reinvestment needs capital structure
• Net of tax (prior to debt payments)
CAPM / Cost of Equity Beta (β)
How to obtain Beta for unlisted companies?
✓ Identify list of comparable listed companies
and obtain their Betas
✓Rf (Risk free rate) – Based on the Zero ✓ Betas can be obtained from websites,
coupon yield curve of Government securities databases, or financial magazines
having maturity of at least 10 years.
✓Rm (Return from market) - Return from the Adjustment for Beta -
equity market ie. long term return on Sensex. ✓ Beta of listed comparable companies should
✓Rm - Rf (the market premium) – the excess be unlevered using Debt/ Equity ratios for
of historical equity returns from the market each of the companies respectively
over the risk free rate. ✓ The average of such should be re-levered
✓Beta (β) - is a measure of the sensitivity of using the Debt/ Equity ratio of the subject
the movement in returns on a particular company
stock to movements in returns on some
measure of the market (i.e. SENSEX, NIFTY
etc.).
Case Studies on
DCF Method

This Photo by Unknown Author is licensed under CC BY


Case Study 1
Case Study 2
Case Study 3
Why Discounted Free Cash Flow Valuation ?

• DCF is based on Free Cash Flows, which is a reliable measure


• It is an internationally accepted method
• Useful in estimating the Company’s intrinsic value
• Extremely detailed
• Multiple scenarios can be built in
• Room for sensitivity analysis
• Can be used even when comparable companies information is not
available
• Used to calculate the IRR

You might also like