Discounted Cash Flow, step by step
Building a DCF.
- Forecast free cash flowOperating cash after tax, capex and working capital.
- Choose a horizonLong enough to reach a steady state, usually 5-10 years.
- Set the discount rateWACC for the firm, adjusted for project risk.
- Calculate the terminal valuePerpetuity growth or an exit multiple.
- Discount everythingEach year's flow and the terminal value to today.
- Bridge to equity valueSubtract net debt from enterprise value.
If terminal value exceeds 75% of the total, the model is really a bet on the terminal assumptions, not the forecast.
Questions about the Discounted Cash Flow poster
- What’s on the Discounted Cash Flow poster?
- 6 numbered steps. Building a DCF. Forecast free cash flow — Operating cash after tax, capex and working capital.; Choose a horizon — Long enough to reach a steady state, usually 5-10 years.; Set the discount rate — WACC for the firm, adjusted for project risk.; Calculate the terminal value — Perpetuity growth or an exit multiple.; Discount everything — Each year's flow and the terminal value to today.; Bridge to equity value — Subtract net debt from enterprise value.. If terminal value exceeds 75% of the total, the model is really a bet on the terminal assumptions, not the forecast.
- Who is the Discounted Cash Flow poster for?
- Discounted Cash Flow belongs to the Accounting & Finance section rather than to a school year, because business is not something one grade owns. Anyone learning valuation can pin it up — a beginner, a student mid-course, or someone revising years later.
- When should you use the Discounted Cash Flow poster?
- Most of a DCF's value usually sits in the terminal value. That is where the risk sits too. A wall chart earns its place by being glanceable from where the work is happening, so Discounted Cash Flow belongs on the wall where that business work actually happens, within glancing distance, rather than filed away.
- What other posters go with Discounted Cash Flow?
- Terminal Value, Multiples and Asset-Based Valuation sit alongside Discounted Cash Flow in the Accounting & Finance section. Printed together they make a wall rather than a single sheet, which is how a reference set actually gets used.Terminal ValueMultiplesAsset-Based Valuation
- Is the Discounted Cash Flow poster free to download and print?
- Yes. Discounted Cash Flow downloads as a free PDF with no account, no email and no watermark, like everything else in the Accounting & Finance section. Print as many copies as you like for a home, a classroom, a library or a tutoring group; reselling the file is the only thing the licence rules out.Read the licence
- What size does the Discounted Cash Flow poster print at?
- Discounted Cash Flow is a vector PDF laid out for US Letter, and prints on A4 with Fit to page — the same file, no separate download. Because every mark on it is drawn rather than photographed, it stays sharp enlarged to A3, A2 or A1 at a copy shop. Colour carries emphasis only, so a greyscale print of Discounted Cash Flow loses nothing.Printing guide
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