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DCF Model

This document summarizes the historical financial performance and forecasted discounted cash flow model of a company. It shows sales, costs, EBITDA, taxes, capital expenditures, net working capital, and unlevered free cash flow from 2006 to 2011. It then forecasts these items from 2010 to 2014 to calculate the company's enterprise value of $5.54 billion and implied share price of $0.57 based on an assumed perpetual growth rate, WACC, and terminal value. A sensitivity analysis is also presented.

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Katherine Chou
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726 views6 pages

DCF Model

This document summarizes the historical financial performance and forecasted discounted cash flow model of a company. It shows sales, costs, EBITDA, taxes, capital expenditures, net working capital, and unlevered free cash flow from 2006 to 2011. It then forecasts these items from 2010 to 2014 to calculate the company's enterprise value of $5.54 billion and implied share price of $0.57 based on an assumed perpetual growth rate, WACC, and terminal value. A sensitivity analysis is also presented.

Uploaded by

Katherine Chou
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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DCF model - www.business-valuation.

net
(in million) Actual CAGR Forecast period
2006 2007 2008 2009 (06 - 09) 2010 2011
Sales 2,955 3,568 4,102 4,663 16% 5,036 5,438
% growth 20.7% 15.0% 13.7% 8.0% 8.0%

Total costs -2,511 -3,047 -3,524 -4,031 17% -4,316 -4,661


% sales 85.0% 85.4% 85.9% 86.5% 85.7% 85.7%

EBITDA 444 521 578 631 12% 720 778


% margin 15.0% 14.6% 14.1% 13.5% 14.3% 14.3%

Depreciation & Amortization: -49 -63 -75 -84 -91 -98


% sales 1.6% 1.8% 1.8% 1.8% 1.8% 1.8%
EBIT 396 459 503 548 11% 629 680

Taxes (30%) -119 -138 -151 -164 -189 -204

Capex -79 -41 -169 -116 -125


% sales 2.2% 1.0% 3.6% 2.3% 2.3%

Increase/Decrease in NWC -145 -77 -18 2 -31

Unlevered Free Cash Flow 159 309 281 417 417

WACC 11.4%
Discount Period 0.5 1.5
Discount Factor 0.95 0.85
Present value of free cash flow 395 355

Terminal Value
Terminal Year Free Cash Flow 526
Perpetuity Growth Rate 3.0%
Terminal Year EBITDA 980
Terminal Value 6,483
Implied Exit Multiple 7.0x
Discount Period 5.0
Discount Factor 0.6
Present Value of Terminal Value 3,787
% of Enterprise Value 68%

(in million) Actual Forecast period


Net Working Capital 2006 2007 2008 2009 2010 2011
Account receivables 10 14 17 13
Inventory 543 749 827 953
Prepaid expenses and other 110 42 63 94
Total Current Assets 663 804 906 1,060 1,128 1,218
% sales 22.4% 22.5% 22.1% 22.7% 22.4% 22.4%

Account payable
Accrued Liabilities
Other Current Liabilities
Total Current Liabilities -509 -505 -530 -666 -735 -794
% sales 17.2% 14.1% 12.9% 14.3% 14.6% 14.6%

Net Working Capital 155 300 377 394 393 424


% sales 5% 8% 9% 8% 8% 8%
DCF model - www.business-valuation.net
Forecast period
2012 2013 2014 Input
5,874 6,343 6,851 Wacc Calculation
8.0% 8.0% 8.0% Target Capital Structure (1)
Debt to Total Capitalization 29.1%
-5,034 -5,436 -5,871 Equity to Total Capitalization 70.9%
85.7% 85.7% 85.7% Debt to Equity Ratio 41.8%

840 907 980 Cost of Equity


14.3% 14.3% 14.3% Risk-free rate (2) 4.0%
Market risk Premium (3) 7.1%
-106 -114 -123 Levered Beta (4) 1.22
1.8% 1.8% 1.8% Size Premium (5) 1.7%
734 793 856 Cost of Equity 14.3%

-220 -238 -257 Cost of Debt


Cost of Debt 6.0%
-135 -146 -158 Taxes 30.0%
2.3% 2.3% 2.3% After Tax Cost of Debt 4.2%

-34 -37 -40 WACC 11.4%

451 487 526 (1) Obtained from Beta and Capital Structure tab
(2) Interpolated Yield on 10-year Treasury bond
(3) Obtained from Ibbotson SBBI Valuation Yearbook
2.5 3.5 4.5 (4) Obtained from Beta and Capital Structure tab
(5) Low-Cap Decile size premium based on market
0.76 0.69 0.62 capitalization, per Ibbotson
344 334 324

Forecast period
2012 2013 2014

1,316 1,421 1,535


22.4% 22.4% 22.4%

-858 -926 -1,000


14.6% 14.6% 14.6%

458 495 534


8% 8% 8%
el - www.business-valuation.net DCF model - www.business-valuation.net
Sensitivity Analysis
Output Perpetuity growth %
Enterprise value ### 5,540 2.0% 2.5% 3.0% 3.5%
Present value of Free Cash Flow 1,753 9.4%
10.4%

WACC
Terminal Value 6,483 11.4%
Discount Factor 0.58 12.4%
Present Value of Terminal Value 3,787 13.4%
% of Enterprise Value 68%
Annual sales growth %
Enterprise value 5,540 ### 5,540 7.0% 7.5% 8.0% 8.5%
Less: Total debt 100 12.3%

EBITDA %
Plus: Cash and Cash Equi. 300 13.3%
Net Debt -200 14.3%
15.3%
Implied Equity Value 5,740 16.3%
Outstanding shares 10,000
Implied share price 0.57

Implied multiples
Enterprise Value 5,540
SALES 2010 5,036
EBITDA 2010 720
Implied EV/SALES 1.1x
Implied EV/EBITDA 7.7x
valuation.net
is
growth %
4.0%

growth %
9.0%
Comparable Companies Unlevered Beta

Levered Beta Market Value of Market Value of Equity/ Total Marginal


Company (1) Debt (2) Equity (3) Debt/ Equity Assets Tax Rate
Company AA 1.23 500 1125 44.4% 69.2% 30%
Company BB 1.31 400 868 46.1% 68.5% 30%
Company CC 1.15 450 788 57.1% 63.6% 30%
Company DD 1.12 375 1125 33.3% 75.0% 30%
Company EE 1.25 250 900 27.8% 78.3% 30%

Median 1.23 44.4% 69.2%


Mean 1.21 41.8% 70.9%

(1) From Bloomberg


(2) Book Value of Debt
(3) From Bloomberg
(4) Unlevered Beta = Predicted Levered Beta / (1 + Debt/Equity) x (1-t))

Relevered Mean Unlevered Mean Target Target Relevered


Beta Beta Debt/ Equity Marginal Beta
Tax Rate
Target Company 0.94 41.8% 30% 1.22
Unlevered
Beta (4)
0.94
0.99
0.82
0.91
1.05

0.94
0.94

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