Discounted Cash Flow (DCF) Valuation

Description

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Who should attend the course?

• New hires who have joined the firm late and missed the in-house program
• Individuals looking to fill a knowledge gap
• Experienced bankers looking to refresh their technical skills
• Teams employed in financial strategy roles from non-banking corporations
• Graduates preparing to interview for a role in the finance sector
• Students at business school and looking for a career in finance

What you will learn

DCF Valuation

Participants learn how to build a discounted cash flow valuation model. The session starts with an overview of the valuation methodology, and the steps required in setting up a valuation model. We then focus on the calculation of free cash flow. A detailed ratio analysis is used to establish the reasonableness of the forecasts and to identify when the target company reaches steady state.

We analyze the weighted average cost of capital, calculate terminal values, using both the exit multiple method and the perpetuity growth method. We discount the free cash flows to arrive at enterprise values and calculate the implied share price. Once the valuation is complete participants perform several checks on the analysis using key ratios, and sensitivity and scenario analysis.

Learning outcomes

Calculating unlevered free cash flows:

• Drivers of cash flow
• Ratio analysis

Weighted average cost of capital:

• Optimal capital structure using peer analysis
• Establishing the company’s forward-looking cost of debt
• Cost of equity: understanding the risk-free rate, the equity risk premium and beta
• Unlevering and re-levering the beta
• Calculating WACC for the case company

Calculating the terminal value:

• Perpetuity growth (Gordon Growth Model) method
• Exit multiple method

Building a discounting model:

• Mid-year adjustments

Calculating enterprise and equity values

Sanity checks:

• Reinvestment rate and ROIC
• Implied multiples and growth rates
• Percentage of value in the terminal period