DISCOUNTED CASH FLOW

PROCESS
1 AWARENESS OF DCF IMPORTANCE

Comprehensive view Helps in decision-making Helps in negotiations

DCF business valuation considers multiple DCF business valuation is an essential tool for DCF business valuation is often used in
factors: future cash flows, discount rates, and decision-making in various areas such as mergers negotiations, such as during the sale of a
terminal values to estimate the intrinsic value of a and acquisitions, investment analysis, and capital business or in disputes between partners.
business. budgeting.
The estimated intrinsic value of the business
It provides a comprehensive view of the It enables investors to compare different investment provides a starting point for negotiations and
investment, considering not only current opportunities and make informed decisions based helps the parties to come to a fair agreement.
performance but also future expectations. on their estimated intrinsic value.

2 HISTORICAL FINANCIAL 3 P&L FORECAST 4 CAPEX FORECAST

STATEMENTS ANALYSIS Identify key drivers: factors such as market size, Identify assets.. This includes both tangible
market share, pricing, and customer acquisition.
Helps to identify trends and patterns that may be assets and intangible assets and export
Gather data. Analyze trends. This analysis can help
relevant for forecasting future performance. you to identify any seasonality, growth rates, or database. Determine useful life of each line.
other trends that may impact future performance. Estimate cost of new purchase price and also
Historical financial statements analysis provides the Based on the analysis of historical data, develop any additional costs associated with
data needed to build forecasting models. By assumptions about future performance. installation. Create a capex schedule that
analyzing past performance, investors can identify Use the assumptions developed in the previous step shows the expected timing and amount of
to create a revenue and expenses
key drivers of future performance each capital expenditure.

5 NWC FORECAST 6 FREE CASH FLOW FORECAST 7

LONG TERM
GROWTH RATE
Working capital projections 2023 2024 2025
Days sales outstanding 16 17 20 Discounted Cash Flows 2024 2025 2026 2027 LTGR should be same or lower than
Days inventory outstanding 13 14 15
Days payable outstanding 12 12 12
EBIT 1,938 1,589 1,655 2,019 historical rate
Tax (286) (232) (241) (295)
Revenues from sales 11,000 11,880 13,156 Non-cash items added back 317 549 692 514
Inventory turnover 6,800 7,344 8,133 Net Working capital LTGR should be same or lower than
Suppliers turnover 6,800 7,344 8,133 adjustments (1,193) (169) (215) (240)
Account receivable 500 553 721
nominal GDP growth rate.
CAPEX adjustments (750) (1,050) (450) (150)
Inventory 300 282 334 Free Cash Flow 27 687 1,440 1,849
Account payable 350 243 269 Discount factor 1.105 1.222 1.350 1.492 LTGR should be same or lower than risk
Working capital, net 450 592 786 DCF 24 563 1,067 1,239
free rate

When valuing a company, the WACC is used

8 WAAC as a discount rate to determine the present
value of its future cash flows. 9 TERMINAL VALUE 10 DCF OF
Risk-free rate 2.0%
OPERATIONS
Equity risk premium 4.72% WACC is applied in Assumption that the company will continue
Unlevered industry Beta 0.81 valuations because it
Gearing (ND / E) 56.4% generating cash flows forever
Relevered industry beta 1.15
represents the • TV – Undiscounted
Sub-total 7.4% minimum rate of Terminal Value
Risk premiums 1.7% return that a company CFn * (1 + g) • CFn – Cash Flow in the Cumulated DCF 4,185
Cost of equity 9.1%
Cost of debt pre tax
needs to earn on its TV = last year of projections Terminal Value 14,533
3.58%
investments to satisfy • g – growth rate
Cost of debt pre tax 3.6% (WACC – g) • WACC – discount rate
Discounted Terminal Value 8,812
Corporate tax rate 25.50% its investors and DCF value of operations 12,997
Cost of Debt after tax 2.7% • n – number of periods
lenders. for projections
Gearing (ND / EV) 36.0%
WACC 6.8%

11 ENTERPRISE VALUE EQUITY VALUE 13 SENSITIVITY ANALYSIS

12
Long term CF growth rate
DCF value of operations 12,997 13,286 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50%
4.52% 35,723 39,653 44,698 51,411 60,784 74,787 97,978 143,810
Excess cash and marketable securities 1,290 Enterprise value 14,376 5.52% 27,809 30,175 33,065 36,672 41,303 47,465 56,068 68,921
6.52% 22,462 23,997 25,810 27,984 30,638 33,951 38,205 43,866
Excess real estate 25 Interest bearing debt (700) 7.52% 18,644 19,693 20,904 22,315 23,981 25,980 28,420 31,466
8.52% 15,805 16,551 17,396 18,362 19,475 20,774 22,307 24,146
Investments in nonconsolidated companies 12 Debt equivalents (165) 9.52% 13,628 14,175 14,786 15,473 16,251 17,140 18,165 19,361
WACC
Tax loss carryforwards 12 10.52% 11,918 12,328 12,782 13,286 13,849 14,482 15,199 16,018
Hybrid claims and non controlling interests 11.52% 10,547 10,861 11,205 11,584 12,002 12,467 12,986 13,569
Discontinued operations 40 (225)
12.52% 9,430 9,674 9,940 10,230 10,548 10,897 11,283 11,711
13.52% 8,506 8,699 8,907 9,133 9,379 9,646 9,940 10,262
Non-operating assets adjustments 1,379 14.52% 7,732 7,886 8,052 8,231 8,423 8,632 8,859 9,106
Equity value 13,286 15.52% 7,077 7,202 7,335 7,478 7,631 7,796 7,974 8,168
Enterprise value 14,376 16.52% 6,518 6,619 6,728 6,843 6,966 7,098 7,240 7,393