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

Operating Scenario

Y
2005

Sales
% growth
COGS

Historical Period
2006
NA
-

2007
-

CAGR
('05 - '07)
-

Projection Period
2011
-

2008

2009

2010

2012

Base

2013
-

Less: Increase in Net Working Capital

Unlevered Free Cash Flow

WACC
Discount Period

Gross Profit
% margin
SG&A
EBITDA
% margin
Depreciation & Amortization
EBIT
% margin

Taxes
EBIAT

Plus: Depreciation & Amortization

Less: Capital Expenditures

-%

Discount Factor
Present Value of Free Cash Flow

Terminal Value
Terminal Year EBITDA (2013E)
Exit Multiple
Terminal Value

WACC

-1.0x
0
0
0
0
0

4.5
1.00
-

Less: Preferred Securities

Less: Noncontrolling Interest
Plus: Cash and Cash Equivalents

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

3.5
1.00
-

1.00
-%

Enterprise Value

2.5
1.00
-

Implied Equity Value and Share Price

Enterprise Value
Less: Total Debt

-x
-

Discount Factor
Present Value of Terminal Value
% of Enterprise Value

1.5
1.00
-

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

Implied Perpetuity Growth Rate

Terminal Year Free Cash Flow (2013E)
WACC

Terminal Value

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

-%
WACC

Enterprise Value
Cumulative Present Value of FCF

0.5
1.00
-

CAGR
('08 - '13)
-

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

Implied Perpetuity Growth Rate

-%

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
2006

2005

2007

2008

2009

Projection Period
2011

2010

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

Year 2

Year 3

Year 4

2009

2010

2011

2012

Projection Period
Year 5
Year 6
2013

2014

Year 7

Year 8

Year 9

Year 10

2015

2016

2017

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

Year 2

Year 3

Year 4

2009

2010

2011

2012

Projection Period
Year 5
Year 6
2013

2014

Year 7

Year 8

Year 9

Year 10

2015

2016

2017

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