Discounted Cash Flow (DCF) Model - CH 3 Investment Banking Valuation Rosenbaum
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- čas přidán 30. 07. 2024
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The discount cash flow analysis (DCF) is a fundamental valuation methodology broadly used by investment bankers, corporate officers, and other finance professionals. It is based on the principal that the value of a company can be derived from the PV of its projected free cash flow (FCF).
While many videos cover the actual framework and how to build the excel model, the assumptions and thinking behind the model are often left to more “real world” examples. This is that example!
Chapter 3 covered topics like;
- How do you project revenues for a DCF model?
- How many years do you project cashflows for?
- What is the exit multiple method?
- What is the perpetuity growth method?
- How do you project EBITDA for a DCF model?
- How do you project EBIT for a DCF model?
- How do you project the NWC for a DCF model?
- What is the mid-year convention?
- How do you calculate unlevered free cash flow?
If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon!
For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories.
seekingalpha.com/author/robert...
Videos referenced;
Estimating Cost of Debt For WACC:
• Estimating The Cost Of...
Estimating Cost Of Equity For WACC:
• Estimating Cost Of Equ...
Projecting NWC;
• Projecting Net Working...
Why Is Your DCF Model Incorrect?
• Why Is My DCF Model In...
Thank you very much for providing a comprehensive DCF tutorial! It is super helpful !
Great Lecture, you go through it so fast but everything made sense because you always give your reasons. I'm surprised I didn't even have to rewind. Awesome!
Thank you so much. It's extremely helpful, it has covered all the conceptual points that I do need not just stick to how to calculate but why.
This is an incredibly helpful tutorial! Thank you so much.
I was reading the book on my own and it's relatively confusing doing it solo. Having you take me through it and bringing in your own examples really clarifies things.
Great tutorial. It’s always wise to be roughly right than precisely wrong.
Thank you, great explanation!
This is amazing! Thank you!
If you're just gonna use the consensus estimates from an equity research paper, may as well take their DCF whilst your at it. Surely you don't want to come up with the exact same analysis? Love to see some modelling videos for revenue (bottom up/ top down)( including projections for fx, M&A and whatever else might impact etc.)
Thank you so much!!!!!!!!!!! This will really help me with my finals
thank you so so so so much
No problem, thanks for watching. Good luck with school!
The way you explained the DSO Method at 44:16 it is the same as estimating the A/R by a % Sales method.
Appreciated of applying DCF Approach. It will be good if companies like Google, Apples, Amazon etc. to be detailed calculated by means of DCF.
Very comprehensive. Thank you! Also checked out your seeking alpha profile, you haven’t posted in a while but you old research is splendid.
amazing !
The BEST explanation of DCF on youtube!!
damodaran
Please also make a video on the DCF Model for cyclic business.
Thank you. It was very helpful lecture.
As you said making your own projections take a lot of time and therefore it is sometimes better to use other's estimations. But can anyone provide me with reliable sources where I can find consensus research estimates and equity research reports?
such an awesome video thank you so much for that, i have a question though, regarding the sensitivity analysis, you only used the Exit multiples and not the PGM as well, would you please explain that a little bit more.
Thanks for watching! The book used the exit multiple whereas you could also use the long-term growth rate (ie.PGM), all depends on what variables you choose to select in excel. The actual process of building the sensitivity analysis is relatively simple and there are several videos covering the topic. Essentially what the model does is use Excel's what-if analysis to change variables in the model and see how that impacts the final projection.
I didn't spend too much time on that because I am not a fan of the common inputs of the sensitivity analysis. Here's the problem, consider a hypothetical scenario where I am a client and I wanted to review your valuation using only the sensitivity analysis. Would looking at inputs like WACC, beta, cost of equity, and the long-term growth rate tell me anything about the actual performance of the business and what the business needs to produce in order to support such a valuation? Would I be able to understand how you view that business performing?
If you watch another one of my videos called "Why is my DCF model incorrect?" you will see that one of the common flaws in any analysis is the sensitivity analysis. Usually, the numbers presented don't make any sense to the buyer using this information because they haven't spent hours looking at the model. Considering performance drivers that actually influence FCF and thus the value of the business is much more relevant for me as an outsider. This means looking at changes in profit margin, cost structure, capex, etc. The focus should be on above the FCF line in order to understand how the analyst projected FCF. The moment you focus on WACC and things after FCF projection, there are dozens of assumptions that I would need to understand before really appreciating the value of such an analysis.
really good video
Hi, you are Khan Academy of IB. Plz, upload the CH:5 and 7 of this book. I really appreciate your time and efforts.
Thanks
Could you please produce a video about the fundamentals, e.g. the CAPM, capital market line, separation theorem, etc.?
Thanks for watching, my video on the cost of capital thoroughly covers the CAPM formula. Please check this video description for that link. With regards to the capital market line and separation theorem, I'll put it on the list for the next few months!
What microphone do you use to record your videos?!
Good
please share the slides you used in the vedio
How can we get the excel files used in the books?
In-depth explanation but would have been better if more practical exercises included!
can we get excel file created in video?
Where are the Excel tools?
I must be missing something here. You say EBIT is Before taxes, then when calculating FCF you say Ebit minus taxes. Which taxes if Ebit is without taxes!?
Where can we download slides from?
Did you got the same?