DCF valuation

1 E(FCFF)
2 Discount rate
3 growth rate
5 Time to reach a stable growth phase
Terminal cash flows

EBIT
Which year EBIT trailing 12- month EBIT
Clean EBIT for valuation make adjustments to EBIT

EBIT=Revenues-operating exp

adjusted EBIT
for R&D
adjusted EBIT= EBIT+Current yeard R&D exp-amortizatio

DCF PV of FCFF in growth years +

PV of FCFF in growth years +

FCFF1
FCFF2
FCFF3
FCFF4
FCFF5
 CPAPEX net capex= capex-depreciatio
FCFF/(1+r) Non cash W.C

Reported earnings
EBIT(1-t)-reinvestrments FCFF= EBIT(1-t)-net Capex-change in non cash W.C
NOPAT-reinvestments NOPAT-net Capex-change in non cash W.C
FCFF= NOPAT*(1-r) 0r EBIT (i-t)*(1-r)
increase in WC reduces cash
decrease in Wc increases

12- month EBIT A/c view

djustments to EBIT GAAP R&D exp operating exp
operating exp valuer view
financing exp income statement capex
capex balance sheet
amortization

rd R&D exp-amortization on Research asset* (1-t)

no. Ex. Price 3 months at expity

premium 100 X 300 320

PV of FCFF in growth years + PV FCFF in perpetuity

PV of FCFF in growth years + PV TV TV=Terminal value

10%
0 FCFF 100
1 110
2 121 growth period is 5 years
3 133.1
4 146.41
5 161.051
capex-depreciation

cash W.C

r=reinvestment rate

A/c view
operating exp
valuer view

amortization