Investment Banking

Valuation, Leveraged Buyouts,

and Mergers & Acquisitions
DCF Analysis - Template

JOSHUA ROSENBAUM
JOSHUA PEARL

ValueCo Corporation
Discounted Cash Flow Analysis
($ in millions, fiscal year ending December 31)
Operating Scenario
1
Mid-Year Convention
Y

Operating Scenario
Historical Period
2005

Sales
% growth

2006

CAGR
2007

NA

COGS
Gross Profit
% margin

SG&A
EBITDA
% margin

Depreciation & Amortization

EBIT
% margin

Taxes
EBIAT
Plus: Depreciation & Amortization
Less: Capital Expenditures
Less: Increase in Net Working Capital
Unlevered Free Cash Flow
WACC
Discount Period
Discount Factor
Present Value of Free Cash Flow

2009

2013

('08 - '13)
-

2.5
1.00
-

3.5
1.00
-

-1.0x
0
0
0
0
0

CAGR
2012

-x
1.00
-%

Enterprise Value

2011

Exit Multiple
Terminal Value
Discount Factor
Present Value of Terminal Value
% of Enterprise Value

2010

Enterprise Value
Exit Multiple
-0.5x
0.0x
0
0
0
0
0
$0
0
0
0
0

0.5
1.00
-

1.5
1.00
-

Plus: Cash and Cash Equivalents

Implied Perpetuity Growth Rate

Implied Equity Value

Implied Share Price

Implied EV/EBITDA
Enterprise Value
LTM 9/30/2008 EBITDA

Implied Share Price

NA

0.5x
0
0
0
0
0

1.0x
0
0
0
0
0

-%
-1.0%
-0.5%
0.0%
0.5%
1.0%

4.5
1.00
-

Implied Equity Value and Share Price

Enterprise Value
Less: Total Debt
Less: Preferred Securities
Less: Noncontrolling Interest

WACC

Terminal Value
Terminal Year EBITDA (2013E)

WACC

Projection Period
2008

-%

Enterprise Value
Cumulative Present Value of FCF

0.0
-1.0%
-0.5%
0.0%
0.5%
1.0%

('05 - '07)
-

Base

Implied Perpetuity Growth Rate

Terminal Year Free Cash Flow (2013E)
WACC
Terminal Value

-%

Implied EV/EBITDA

-1.0x
-%
-%
-%
-%
-%

Implied Perpetuity Growth Rate

Exit Multiple
-0.5x
0.0x
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%

-x

0.5x
-%
-%
-%
-%
-%

1.0x
-%
-%
-%
-%
-%

ValueCo Corporation
Sensitivity Analysis
($ in millions)

0.0
-1.0%
-0.5%
0.0%
0.5%
1.0%

-1.0x
0
0
0
0
0

-0.5x
0
0
0
0
0

Exit Multiple
0.0x
0
0
$0
0
0

Implied Equity Value

0.5x
0
0
0
0
0

1.0x
0
0
0
0
0

WACC

WACC

Enterprise Value
0.0
-1.0%
-0.5%
0.0%
0.5%
1.0%

-%
-1.0%
-0.5%
0.0%
0.5%
1.0%

-1.0x
NA
NA
NA
NA
NA

-1.0x
-%
-%
-%
-%
-%

-0.5x
NA
NA
NA
NA
NA

Implied Perpetuity Growth Rate

Exit Multiple
-0.5x
0.0x
-%
-%
-%
-%
-%
-%
-%
-%
-%
-%

-0.5x
0
0
0
0
0

Exit Multiple
0.0x
0
0
$0
0
0

0.5x
0
0
0
0
0

1.0x
0
0
0
0
0

PV of Terminal Value as % of Enterprise Value

0.5x
NA
NA
NA
NA
NA

0.5x
-%
-%
-%
-%
-%

1.0x
NA
NA
NA
NA
NA

1.0x
-%
-%
-%
-%
-%

WACC

NA
-1.0%
-0.5%
0.0%
0.5%
1.0%

Exit Multiple
0.0x
NA
NA
NA
NA
NA

WACC

WACC

WACC

Implied Share Price

-1.0x
0
0
0
0
0

-%
-1.0%
-0.5%
0.0%
0.5%
1.0%

-x
-1.0%
-0.5%
0.0%
0.5%
1.0%

-1.0x
-%
-%
-%
-%
-%

-1.0x
-x
-x
-x
-x
-x

-0.5x
-%
-%
-%
-%
-%

Exit Multiple
0.0x
-%
-%
-%
-%
-%

Implied Enterprise Value / LTM EBITDA

Exit Multiple
-0.5x
0.0x
-x
-x
-x
-x
-x
-x
-x
-x
-x
-x

0.5x
-%
-%
-%
-%
-%

1.0x
-%
-%
-%
-%
-%

0.5x
-x
-x
-x
-x
-x

1.0x
-x
-x
-x
-x
-x

ValueCo Corporation
Working Capital Projections
($ in millions)
Historical Period
2005

2006

Projection Period
2007

2008

2009

2010

2011

2012

2013

Sales
Cost of Goods Sold

Current Assets
Accounts Receivable
Inventories

Prepaid Expenses and Other

Total Current Assets

Current Liabilities
Accounts Payable
Accrued Liabilities
Other Current Liabilities
Total Current Liabilities

Net Working Capital

% sales
(Increase) / Decrease in NWC
Assumptions
Days Sales Outstanding
Days Inventory Held
Prepaids and Other CA (% of sales)

-%

-%

-%

-%

-%

-%

-%

-%

-%

Days Payable Outstanding

Accrued Liabilities (% of sales)
Other Current Liabilities (% of sales)

-%
-%

-%
-%

-%
-%

-%
-%

-%
-%

-%
-%

-%
-%

-%
-%

-%
-%

ValueCo Corporation
Weighted Average Cost of Capital Analysis
($ in millions)

WACC Calculation
Target Capital Structure
Debt-to-Total Capitalization
Equity-to-Total Capitalization
Cost of Debt
Cost of Debt
Tax Rate
After-tax Cost of Debt

Cost of Equity
Risk-free Rate(1)
Market Risk Premium(2)
Levered Beta
Size Premium(3)
Cost of Equity

Comparable Companies Unlevered Beta

Predicted
-%
100.0%

-%
-%
-%

Company
CompCo1
CompCo2
CompCo3
CompCo4
CompCo5

Levered Beta(4)
-

Mean
Median

Market

Market

Debt/

Marginal

Value of Debt
-

Value of Equity
-

Equity

Tax Rate
-%
-%
-%
-%
-%

Unlevered
Beta
-

-%
-%
-%
-%
-%

-%
-%

ValueCo Relevered Beta

Mean
Unlevered
Beta

-%
-%
-%
-%

Relevered Beta

Target
Debt/
Equity
-

Target
Marginal
Tax Rate
-%

Relevered
Beta
-

-%

WACC

-%

(1) Interpolated yield on 20-year U.S. Treasury

(2) Obtained from Ibbotson SBBI Valuation Yearbook
(3) Low-Cap Decile size premium based on market capitalization, per Ibbotson
(4) Sourced from Barra

Debt-to-Total
Capitalization

WACC Sensitivity Analysis

0.0
-20.0%
-10.0%
0.0%
10.0%
20.0%

-1.0%
0.2%
0.1%
0.0%
-0.1%
-0.2%

-0.5%
0.1%
0.1%
0.0%
-0.1%
-0.1%

Pre-tax Cost of Debt

0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

0.5%
-0.1%
-0.1%
0.0%
0.1%
0.1%

1.0%
-0.2%
-0.1%
0.0%
0.1%
0.2%

Assumptions Page 1 - Income Statement and Cash Flow Statement

Year 1
2009

Year 2
2010

Year 3
2011

Projection Period
Year 5
Year 6
2013
2014

Year 4
2012

Year 7
2015

Year 8
2016

Year 9
2017

Year 10
2018

Income Statement Assumptions

Sales (% growth)
Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

Cost of Goods Sold (% sales)

Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

SG&A (% sales)
Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

Depreciation & Amortization (% sales)

Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

Cash Flow Statement Assumptions

Capital Expenditures (% of sales)
Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

Assumptions Page 2 - Balance Sheet

Year 1
2009

Year 2
2010

Year 3
2011

Projection Period
Year 5
Year 6
2013
2014

Year 4
2012

Year 7
2015

Year 8
2016

Year 9
2017

Year 10
2018

Current Assets
Days Sales Outstanding (DSO)
Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

Days Inventory Held (DIH)

Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

Prepaid and Other Current Assets (% of sales)

Base
1
Management
2
Upside
3
Downside 1
4
Downside 2
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

Current Liabilities
Days Payable Outstanding (DPO)
Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

Accrued Liabilities (% of sales)

Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

Other Current Liabilities (% of sales)

Base
Management
Upside
Downside 1
Downside 2

1
2
3
4
5

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

-%
-%
-%
-%
-%
-%

Copyright 2009 by Joshua Rosenbaum and Joshua Pearl. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:

ISBN-13 978-0-470-44220-3
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1