How to Build a Discounted Cash Flow (DCF) | Step-By-Step Guide From Ex-JP Morgan Investment Banker

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  • čas přidán 30. 07. 2024
  • In this video, I provide a step by step guide on how to build a Discounted Cash Flow (DCF) model.
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    ⏱Timestamps⏱
    0:00 - Introduction
    1:28 - Alto IRA
    3:01 - What is a DCF?
    4:12 - The 5 Steps of a DCF
    4:36 - Step 1 - Projecting Free Cash Flow
    12:51 - Step 2 - Calculating WACC
    19:34 - Step 3 - Calculating Terminal Value
    23:13 - Step 4 - Discounting back to Present Value
    24:16 - Step 5 - Calculating Implied Share Price
    27:00 - Advanced Topics
    🔎Disclaimer🔎
    All content in this video is for entertainment purposes only. I am not a professional financial advisor and my statements are not to be taken as instructions or directions. In addition, some of the links above are affiliate links, meaning that at no additional cost to you, I may earn a commission if you click through and make a purchase.
    #dcf #valuation #stocks

Komentáře • 194

  • @rareliquid
    @rareliquid  Před 2 lety +8

    ⭐ Alto IRA⭐
    ► Open a crypto IRA & Get $50 for FREE: altoira.grsm.io/rareliquid
    👇Download the Templates👇
    ► www.dropbox.com/sh/vco01w7g626tc61/AACSqicz-YQUid0RoDPEo8m6a?dl=0
    🚀Sign up for my Courses🚀
    ► How to get into investment banking: forms.gle/wt4cZrezbxVgNzGUA
    ► How to get into MBA programs: forms.gle/9yEyycuP7NnQBjue8
    ► How to research crypto: forms.gle/fvzTKu13pBgPnBMA9

  • @julian5094
    @julian5094 Před rokem +3

    I just want to say thanks for this video. Couldn’t find much on a step by step tutorial DCF. 🙏🏽🚀

  • @ecccc758
    @ecccc758 Před 2 lety +3

    Clean workbook formatting, easy to follow PPT's, and step-by-step instructions. FANTASTIC instruction methodology, thanks for the informative content!

  • @mattiovino3752
    @mattiovino3752 Před 2 lety +3

    Love these follow along videos. Find them very helpful for learning the basics

  • @Juv787
    @Juv787 Před dnem

    Hey Ben, great video! I noticed a minor correction that might be helpful.
    The formula for the cost of equity should not multiply the Risk-Free Rate by Beta.
    Instead, the correct formula using the Capital Asset Pricing Model (CAPM) is:
    Cost of Equity= Risk Free Rate+β×(Expected Market Return−Risk-Free Rate)
    All The Best,
    Juv

  • @yannbeko
    @yannbeko Před rokem +1

    Those video are so cool ! Complicated to traduce everything from english to french but it makes me step up. Every step count when you have an objectives

  • @AJRMediaAgency
    @AJRMediaAgency Před rokem

    Ofc you have more than 100k subscribers, you are sharing a wealth of knowledge here!

  • @joshuaalfred8307
    @joshuaalfred8307 Před 2 lety +5

    5 minutes in. Subscribed. I could immediately tell content is legit.
    Looking forward to your in-depth video explaining DCF. Everyone else covers a dumbed down DCF, but I want to understand it like the professionals do.

  • @danielmaher7781
    @danielmaher7781 Před 2 lety +5

    Great video and explanation. FYI you can make your Ticker a 'Stock' Data Type in excel which gives you access to some useful info like market cap, beta, share price etc so you don't need to keep updating manually. Worth giving it a try :)

  • @cameronrobin_
    @cameronrobin_ Před rokem +1

    This video has been unbelievably helpful! Thanks so much! :)

  • @Prosnipezzzz1
    @Prosnipezzzz1 Před 2 lety +1

    Ben your literally a gem appreciate all work!!

  • @roydavis1417
    @roydavis1417 Před 2 lety +13

    Your insights on operating assets and operating liabilities. Your insights into years used to project and even mentioning using 20-30 years at JPMorgan. Also really breaking down the information you value worth projecting or using. All very useful, thank you. This was without a doubt your best DCF video yet. It was explained very well.
    I was interested in the concept of years used forward, cause really all we're doing is trying to predict a future market cap in todays value. I also realized the market can move rather quickly, so a long projection isn't always going to be the case, it's just simply a way for the calculation to give us a fair idea if we weight it with those years. However with the recession coming those years will likely matter (lol).

    • @rareliquid
      @rareliquid  Před 2 lety +2

      thanks so much for the nice comment!

  • @rareliquid
    @rareliquid  Před 2 lety +28

    ⏱Timestamps⏱
    0:00 - Introduction
    1:28 - Alto IRA
    3:01 - What is a DCF?
    4:12 - The 5 Steps of a DCF
    4:36 - Step 1 - Projecting Free Cash Flow
    12:51 - Step 2 - Calculating WACC
    19:34 - Step 3 - Calculating Terminal Value
    23:13 - Step 4 - Discounting back to Present Value
    24:16 - Step 5 - Calculating Implied Share Price
    27:00 - Advanced Topics

  • @elyfal6586
    @elyfal6586 Před rokem

    Great video, mate. Very well simplified :)

  • @user-es6zb5iv3o
    @user-es6zb5iv3o Před rokem +2

    This video was really helpful! Thank you so much.

  • @adilkhanyeslyambek2955
    @adilkhanyeslyambek2955 Před 2 měsíci

    Great video, Ben! Keep rocking

  • @AstronautOtto
    @AstronautOtto Před rokem

    DUDE thank you so much for including the template.

  • @user-wy8sj7jn8u
    @user-wy8sj7jn8u Před měsícem

    I just wanted to say how much I appreciate your commitment to helping traders succeed. Your strategies are so well researched and effective, and your willingness to share them with us without any expectation of payment is truly inspiring. Thank you for being such an amazing teacher and mentor.

  • @khattak1430
    @khattak1430 Před 2 lety +1

    Hi rareliquid, this video was highly insightful.
    please do a video on M&A transaction/modeling as well.

  • @Pietsuttaja
    @Pietsuttaja Před 2 lety +1

    Good stuff. Keep em’ comin!

  • @lorenzo4103
    @lorenzo4103 Před 2 lety +45

    hey Ben, nice video! Would like to see LBOs and Power Point presentation you did at JPM. Ould you do a video about that?

    • @rareliquid
      @rareliquid  Před 2 lety +18

      both of these will be coming soon!

  • @keedtalktoem3674
    @keedtalktoem3674 Před 2 lety +8

    Great work, clean and precise on everything. Only thing i would argue on is the TGR being equal to GDP growth. Through my experience i’ve always learned to be conservative when valuing a company and therefore have a TGR usually 1-2% lower than GDP growth

    • @benadkins7695
      @benadkins7695 Před 7 měsíci

      If you're generating a return less than or equal to inflation, you wouldn't be purchasing stocks over bonds unless you owned a majority share.

  • @finnsheehan4590
    @finnsheehan4590 Před 2 lety

    Hey Ben, any chance you would be able to make a quick video on finding the financials for this model? Great video.

  • @videos-qh1gg
    @videos-qh1gg Před 2 lety +1

    Hey Ben, thank you so much for this incredibly insightful video. I have a question though: If the change in networking capital is already negative, don't we add it instead of subtracting? Thanks :)

  • @eddierosario1537
    @eddierosario1537 Před rokem

    Man this really does help for us beginners

  • @barryaherne215
    @barryaherne215 Před 2 lety +2

    Nice! DCFs are a little intense for me, so I'll chip away at this over the week ✌️

  • @RichFlair310
    @RichFlair310 Před 7 měsíci

    Awesome videos dude! Have been working through your whole channel - congrats on Wharton!
    Question. In Step 1, why did you project D&A as a % of revenue instead of as a % of CapEx?

  • @ronkatayev426
    @ronkatayev426 Před 2 lety +1

    Thanks so much for the video!

  • @nikobaklanov4455
    @nikobaklanov4455 Před 2 lety +1

    Hello! Thank you for such a cool video, just one remark you had a mistake on the video with "What is WACC" where you multiplied the risk free rate in the formula instead of adding it as you explained further on.

  • @sebastianpolanco6352
    @sebastianpolanco6352 Před rokem +1

    this has value, thank you!

  • @user-uf8bk6lk2o
    @user-uf8bk6lk2o Před 9 dny

    This is great, thank you so much

  • @BNLien
    @BNLien Před 4 měsíci

    Thank you very much for all the useful information, especially the how you answer interview question on DCF. I am wondering if you can do the similar thing with 3 statements models. I have done it but don't know how to put them into words and sumarization. Appreciate your reply.

  • @y_limit_yourself
    @y_limit_yourself Před rokem +7

    @rareliquid Love your videos thanks for all your help! I'm a bit confused about how you get the projected revenue amounts and rates though, could you clarify where $525,188 and 11.8% are derived from?

  • @aryavbothra9662
    @aryavbothra9662 Před 2 lety +20

    This is so awesome!! Could you share the template for the DCF with the multiple cases (conservative, base, etc.) as well please? I’ve been struggling with the formatting for so long and it would be a tremendous help. Thanks so much for this whole DCF series, it’s been a lifesaver!!!

  • @MCrypto020
    @MCrypto020 Před rokem +5

    Love the vid, I just think there is a little mistake when calculating the cost of equity at 16:30. It is a + like u mention later instead of x

  • @annazaiceva5861
    @annazaiceva5861 Před 2 lety

    Hey! This is very helpful! Can you pls do the sensitivity analysis and scenario analysis methodology?

  • @alexwedermann3282
    @alexwedermann3282 Před rokem

    Thanks for the awesome video!

  • @Tfcistheboss
    @Tfcistheboss Před 2 lety +1

    Loved this.

  • @parthbhatt1226
    @parthbhatt1226 Před 2 lety +1

    Thank you! Please also teach a thorough LBO model

  • @alperdokucu1345
    @alperdokucu1345 Před rokem

    Thank you! Very helpful.

  • @bhargav1389
    @bhargav1389 Před 2 lety

    Please make a video on advance topics as well. It kind a gives clear picture of DCF model otherwise learning part by part would be very confusing.

  • @nickstephenson1064
    @nickstephenson1064 Před 2 lety

    Great video, thanks!

  • @MrJunhaotyco
    @MrJunhaotyco Před rokem

    Hey buddy, great video! I'm wondering if risk-free rate can be used to replace WACC/discount rates?

  • @luisfilipesf
    @luisfilipesf Před 3 měsíci +1

    Hi! Thanks for the video really appreciated. Quick question: how did you make the %growth in revenue and other assumptions?

  • @dohlay7766
    @dohlay7766 Před 2 lety

    Hi Ben, thanks a lot for this wonderful video ! I am doing my Masters degree and now quite interested in the wealth management private banking division, what would you recommend to prepare for this position

  • @thaiphung8357
    @thaiphung8357 Před 2 lety +2

    Can you also do an instruction video for DDM and RI model? Some corporations do not operate in a way other firms do so DCF is not applicable for them. Thanks

  • @gamerspeed8845
    @gamerspeed8845 Před rokem

    Very good video ! Really interesting ! Do you know if a database with historical DCF analysis perform by different analysts exist ?
    Thanks a lot !

  • @LordikCZ
    @LordikCZ Před 2 lety +1

    Nice and clear explanation, only thing I miss is how we got the approximations of Revenue, CAPEX and Taxes in income statement section.

  • @donaldduck4595
    @donaldduck4595 Před 2 lety

    Hey Ben, I asked you about 2 weeks ago which keyboard you use. Ever since I got it my wristpain from working 10-12 hours a day went away almost completely. Thank you so much for the recommendation!🙏🏼🙏🏼🙏🏼
    Since I still got problems with my right hand, I wanted to ask which mouse you use😃

  • @EvEnPvP
    @EvEnPvP Před rokem

    Awsome video! How do you automatically get data for a new company into the same excel sheet? Or do you have to do it manually? Thanks

  • @viktorf9617
    @viktorf9617 Před 2 lety +1

    You are the best, thank you :)

  • @footlongchen
    @footlongchen Před rokem

    thanks for these!

  • @lia55lee
    @lia55lee Před 10 měsíci

    thank you for showing this !! how do you make predicions for D&A ?

  • @WasteSecond
    @WasteSecond Před 2 lety +3

    I'd love a video on how to calculate the diluted shares outstanding

  • @indubitablyyeah338
    @indubitablyyeah338 Před 2 lety +1

    Thanks man. Kinda forgot how to do this from Business school already 😂. 🍻

  • @mafaldeta5575
    @mafaldeta5575 Před 5 měsíci

    Thank you for your content

  • @willfowls2400
    @willfowls2400 Před rokem +6

    Great video! Seeing the DCF built out from scratch helps me visualize the process and apply it in practice. Just curious, were estimated revenue growth, EBIT margin, D&A, etc. figures for 2022-2026 based on historical data in the sector? Or was it more of a forward-looking estimate based on sector growth, macroeconomic factors, etc.? Maybe a little bit of both? Any information on estimating forward-looking estimates of revenue growth, future margins, etc. is helpful. Thanks

    • @freerunner626
      @freerunner626 Před 9 měsíci +1

      great question, just watched the video and I has the same question when I noticed the forecasted revenues being hard coded

  • @rodrigogonzalez2673
    @rodrigogonzalez2673 Před 2 lety +2

    Can you do a video of PowerPoint presentation skills and most common shortcuts there as well?

  • @milespulvers5858
    @milespulvers5858 Před 10 měsíci +4

    Where did you get all the projections? Did you calculate them, and if so how, or did you find them from an outside source? Building my own DCF for an application so I'd really appreciate some advice.

  • @RicardoFlores-dc8kz
    @RicardoFlores-dc8kz Před 2 lety +1

    Awesome! Thank or the video
    Note: where did u find the Cash and Debt? I search on BS but data does not match.

  • @yashmaurya3679
    @yashmaurya3679 Před 2 lety

    Can you please also make videos on treasury stock method, comparable company analysis and precedent transaction analysis.

  • @WeSnapple
    @WeSnapple Před rokem

    Rareliquid what are some better ways to understand what accounts are operating assets and liabilities? THis part gets me so hung up.

  • @jordanevans9385
    @jordanevans9385 Před rokem

    Thank you so so much!!

  • @ricardoaldana2137934
    @ricardoaldana2137934 Před 2 lety +1

    The best, thank you

  • @kevinsuh5313
    @kevinsuh5313 Před 2 lety +1

    thank you sir!

  • @Obsessivefilms
    @Obsessivefilms Před rokem

    Awesome vid❤

  • @jeancarlojimenezcondori8574
    @jeancarlojimenezcondori8574 Před 6 měsíci

    Thanks for Sharing. I liked it. I ve seen a theory where incorporate two concepts : SA( Surplus assets) and M ( Minority) to calculate Equity Value. What can you tell me about this ? Thanks in advance

  • @itsgoingtobelegenwaitforit8741

    Hey do you have a Video Where you explain step by step how make the assumptions? Would be awesome

  • @adityarajamani93
    @adityarajamani93 Před 9 měsíci +1

    how did you get the revenue for 2022,2024,2025 etc. As in what assumptions did you make to get the different growth rate percentage

  • @JoshuaLam89
    @JoshuaLam89 Před rokem +17

    hi i have some questions, how do you determine the income statement and casflow items from year 2022-2026? And how do you calculate (or get the data) for 'cost of debt', 'risk free rate', and 'market risk premium'? Thanks. Great content.

    • @louisvilleseche2996
      @louisvilleseche2996 Před rokem +2

      Cost of debt is the yield to maturity (or interest rate) that the debt is supplied at, risk free rate is generally the yield to maturity of 10 year T bills, market risk premium is the expected return of the asset minus the risk free rate. Hope this helps

  • @egesoysal6032
    @egesoysal6032 Před 2 lety

    Hello Ben I live in Turkey. In here,right now, there is a huge enflation ( over %150) in this situation people always says you can’t use DCF model because you can’t predict future growth by looking historical datas.
    Is it true ? Or do you have any suggestion to make projection ?

  • @Reza_Audio
    @Reza_Audio Před rokem

    4:40 I guess in the first line of FCF calculation, you need to put operating income instead of EBIT while they are not the same, so the first line which will be NOPAT is calculated from Operating Income*(1- Tax rate)

  • @jamescurran1491
    @jamescurran1491 Před měsícem

    16:35 I think there is a mistake. Cost of equity should be RFR + beta x (equity risk premium) if you're using CAPM.
    You have it multiplied by the RFR, not added to.

  • @arnaudlouispotard8645
    @arnaudlouispotard8645 Před rokem +2

    How do you find the growth rate on the forecast years ? (for the FCFF)

  • @viratverma3616
    @viratverma3616 Před rokem

    Hey Ben, I have questions, why at @9:28 to get projected revenue why have you did this =previous (1+growth rate)? I want to know why we are adding one here (1+....)?

  • @milapthakor3320
    @milapthakor3320 Před 8 měsíci

    Hey! You are considering market cap as equity value; Isn't that should be derived from balance sheet equity ?

  • @sriram181
    @sriram181 Před 11 měsíci +2

    9:55 hey , how did you arrive at the projected growth in revenue figures and projected growth in EBIT figures ? Was that a product of some calculation or was that a general assumption?

  • @ankuryadav5512
    @ankuryadav5512 Před 2 lety +1

    Thanks alot for this

  • @Nicolas-qr6xy
    @Nicolas-qr6xy Před 2 lety

    Where exactly did you get the projections for the income statement and cash flow items?

  • @sudarshanravi3219
    @sudarshanravi3219 Před 3 měsíci

    There is a small mistake in the formula in the last line on slide on screen at 16.55.
    It should be --> Cost of equity = Risk free rate beta * (expected market return - risk free rate).
    Instead of --> Risk free rate beta * (expected market return - risk free rate)

  • @lucasbanega_
    @lucasbanega_ Před rokem +1

    Thanks for sharing your knowledge in these kind of video. It's very useful! I have a question. How can I calculate the TGR? And, can I replace the WACC with a discount rate? For example, 15% instead of the Wacc. Thanks!

    • @rareliquid
      @rareliquid  Před rokem +1

      tgr is usually rate of growth of economy and so for US companies, around 2-3%. and wacc is same thing as discount rate!

  • @rkt3898
    @rkt3898 Před rokem +1

    Where do I get TGR for calculating Terminal Value? Why can't I apply the difference in growth between year 2025 and year 2026? Please help

  • @benjaminli3808
    @benjaminli3808 Před rokem +1

    I may have missed it but where do those projected growth values come from?

  • @kilotrades803
    @kilotrades803 Před 5 dny +1

    is there a formula for how you got the projections? how exactly did you get those numbers?

  • @atursunov225
    @atursunov225 Před rokem

    Dear, it was great representation of DCF. Please help me to download the DCF template. I can't download the template from the link.

  • @nev6250
    @nev6250 Před 2 lety +5

    Liquid, could you do a desk setup video sometime? Introducing your gadgets etc

    • @rareliquid
      @rareliquid  Před 2 lety +1

      yup will be doing this in late august or early september

    • @nev6250
      @nev6250 Před 2 lety

      @@rareliquid awesome! Looking forward to it man!

  • @keithleyjarvis5663
    @keithleyjarvis5663 Před 2 lety

    Do mind sharing the slides with the steps and points you used in the video?

  • @dixonyamada6969
    @dixonyamada6969 Před rokem +1

    the cost of equity formula in the slide has a typo. risk free rate PLUS beta, not TIMES beta.

  • @bhargav1389
    @bhargav1389 Před 2 lety

    Is calculating sensitivity analysis important in DCF valuation.

  • @financebr
    @financebr Před rokem

    awesome video! i think you could increase the size of your cam, it too small.

  • @Bens_ant_world
    @Bens_ant_world Před měsícem

    Hi, did you ever do a more exhaustive DCF video?

  • @kaltiny1997
    @kaltiny1997 Před 7 měsíci

    Why isn’t cost of sales and sg&a expenses taken into consideration? Are they optional when valuing a company?

  • @Cleisthenes607
    @Cleisthenes607 Před rokem

    What do you do if a company has negative cashflows?

  • @RohitThakur-en7qw
    @RohitThakur-en7qw Před 2 lety

    Thank you Please Make some videos from scratch for financial modeling for college students.😃

  • @BigA678
    @BigA678 Před 2 lety +1

    Do a review of the show Industry on HBO. Its about IB in the UK

  • @dimitrismarinosmantziagris9158

    Hello my friend! what program do we use to record the videos?

  • @user-mx3lo9zj5y
    @user-mx3lo9zj5y Před 4 měsíci +1

    Please , can u tell me ,bases on what you are doing assumptions in the beginning ? 11.8 % for 2022 ,how did you get this number ?

  • @andrearusconi8802
    @andrearusconi8802 Před 3 měsíci

    Formula of CAPM (for the cost of equity) on the ppt is wrong, as correctly stated in the Excel. Minute 16.30

  • @ATothFTW18
    @ATothFTW18 Před rokem

    How do you forecast EBIT without using others estimates?

  • @anthonydely4112
    @anthonydely4112 Před 4 měsíci

    where did you get the %growth rate ? I mean can you estimate it or is it based on the company's/ professional's assumptions ?