Discounted Cash Flow Analysis - Model 1 (Simple DCF Model)

Cash Flow (CF) 2025

Building Revenue ₹ 200,000
Less:
Building Expenses ₹ 50,000
Building Cash Flow ₹ 150,000

Cost of Capital

Cost of Capital 10%

Present Value of Cash Flows (PV of CF) 2025

1
Discount Factor 0.909
Present Value of Cash Flows ₹ 136,363.64

Terminal Value (Cash Flow of the Building in Perpetuity)

Cost of Capital
Growth Rate in Perpetuity
Terminal Value

Building Value: Perpetuity Growth Rate Method

Building Value Step 1 Step 2

₹ 568,618.02 ₹ 1,187,512.03 ₹ 1,756,130.05
Conclusion:
 2026 2027 2028 2029
₹ 200,000 ₹ 200,000 ₹ 200,000 ₹ 200,000
22nd
₹ 50,000 ₹ 50,000 ₹ 50,000 ₹ 50,000 1,2,3,5,6,7,8,9,1-,11,12,13,14,15,1
₹ 150,000 ₹ 150,000 ₹ 150,000 ₹ 150,000

Ke = (D * (1 + g)/MP) + g
MP = (D*(1 + g))/(ke - g)

2026 2027 2028 2029

2 3 4 5 TV = (FCFn * (1 + g)) / (WACC –
0.826 0.751 0.683 0.621
₹ 123,966.94 ₹ 112,697.22 ₹ 102,452.02 ₹ 93,138.20

10%
2%
₹ 1,912,500
7,8,9,1-,11,12,13,14,15,16,19,23,25,26,28,32,33,35,36,37,38,39,41,42,43,44,45,46,47,48,49,51,55,56,59,60,61,66,68,70,71,72,73,74,76,78

(1 + g)/MP) + g
1 + g))/(ke - g)

Fn * (1 + g)) / (WACC – g)
61,66,68,70,71,72,73,74,76,78
Discounted Cash Flow Analysis - Model 2

From the following details find the value of the shares under both
Perpetual Growth & Exit Multiple Methods using forecasted values Soln.:
of 5 years after 2017. Caculation of EAT
Details of 2017 Particulars
EBITDA 74,467 EBITDA
D&A 7,124 Less: D&A
NWC 1,032 EBIT
Capital Expenditures 9,836 Less: Int.
Current Price 190.00 EBT
Shares Outstanding 5,382 Less: Tax
EAT

Assumptions for Forecaste Calculation of FCFs

Tax Rate 26% EAT
Discount Rate 10% Add: D&A
Perpetural Growth Rate 4% Less: NWC
EV/EBITDA Mulltiple 9.0x Less: CAPEX
Gross Debt 87,032 FCFs
Net operating Assets 237,585
CAPEX (increase every year) 4.5% Calculation of PV of FCFs
EBITDA and D&A (increase every year) 5% Period
NWC (on previous year) 90% Discount Rate
Interest Rate 10% Discount Factor
PV of FCFs
Total PV of FCFs

Calculation of TV: Perpetual Growth Method

Discount Rate
Perpetual Growth Rate
TV of FCFs
PV of TV

Enterprise Value

Value per share

Conclusion
 2017 2018 2019 2020 2021 2022
74,467 78189.93 82099.4265 86204.397825 90514.61771625 95040.3486021
7,124 7480.2 7854.21 8246.9205 8659.266525 9092.22985125
67,343 70,710 74,245 77,957 81,855 85,948
8,703.20 8,703.20 8,703.20 8,703.20 8,703.20 8,703.20
58,639.40 62,006.53 65,542.02 69,254.28 73,152.15 77,244.92
15,246.24 16,121.70 17,040.92 18,006.11 19,019.56 20,083.68
43,393.16 45,884.83 48,501.09 51,248.17 54,132.59 57,161.24

43,393.16 45,884.83 48,501.09 51,248.17 54,132.59 57,161.24

7,124 7,480 7,854 8,247 8,659 9,092
1,032 928.8 835.92 752.328 677.0952 609.38568
9,836 10278.62 10741.1579 11224.510005 11729.61295575 12257.4455388
39,649.16 42,157.61 44,778.22 47,518.25 50,385.15 53,386.64

of PV of FCFs
1 2 3 4 5
10%
0.909090909 0.826446281 0.7513148009 0.683013455365 0.62092132306
38,325.10 37,006.80 35,701.16 34,413.74 33,148.90
178,595.70

of TV: Perpetual Growth Method Exit Multiple Method

10% EBITDA 95040.3486021
4% Multiple 9.0x
₹ 925,368 TV ₹ 855,363
₹ 574,581 PV of TV ₹ 531,113

₹ 753,177 Enterprise Value ₹ 709,709

₹ 139.94 Value per share ₹ 131.87

Shares are Overvalued, hence SELL Conclusion Shares are Overvalued, hence SELL
rvalued, hence SELL
DISCOUNTED CASH FLOW ANALYSIS - MODEL 3
Valuation Date 1/1/2020
Share Price on Valuation Date $25
Diluted Shares Outstanding 500

Select Operating Data

$mm Projected Annual Forecast
2017A 2018A 2019A 2020P 2021P 2022P
Revenue $5,300.0 $5,700.0 $6,000.0
Revenue Growth Rate (%) 10.0% 11.0% 12.0%

EBITDA $2,000.0 $2,080.0 $2,150.0

EBITDA Margin (%) 35.0% 35.0% 35.0%

EBIT 1,700.0 1,750.0 1,800.0

EBIT Margin (%) 30.0% 30.0% 30.0%

Depreciation & Amortization $300.0 $330.0 $350.0

D&A as a % of revenue 5.6% 5.3% 4.1%

Select Balance Sheet And Other Data

$mm Projected Annual Forecast
2017A 2018A 2019A 2020P 2021P 2022P
Cash $700.0 $1,000.0 $1,500.0
Accounts Receivable 1,100.0 1,250.0 1,350.0
Inventories 900.0 925.0 935.0
Prepaid Expenses 50.0 63.0 75.0

Accounts Payable $930.0 $960.0 $1,000.0

Accrued Expenses 90.0 88.0 93.0

Debt 2,300.0 4,750.0 4,250.0

Capital Expenditures 455.0 488.0 535.0

Accounts Receivable Growth (%) 10.0% 11.0% 12.0%

Inventories Growth (%) 1.5% 5.5% 9.1%
Prepaid Expenses Growth (%) 19.6% 18.7% 15.6%
Accounts Payable Growth (%) 1.5% 5.5% 9.1%
Accrued Expenses Growth (%) 10.0% 11.0% 12.0%
Capital Expenditures Growth (%) 10.0% 11.0% 12.0%

Long term growth rate 4.0%

Tax rate 40.0%
Cost of Debt 5.2%
Cost of Equity 15.0%

Q: If the stock is trading at $25.00 a share and you believe that your DCF analysis is accurate, would you buy or se
ed Annual Forecast
2023P 2024P

13.0% 13.0%

35.0% 35.0%

30.0% 30.0%

4.7% 4.4%

ed Annual Forecast
2023P 2024P

13.0% 13.0%
9.9% 9.9%
13.0% 15.3%
9.9% 9.9%
13.0% 13.0%
13.0% 13.0%
ate, would you buy or sell stock in this company? Why?
Solution: DISCOUNTED CASH FLOW ANALYSIS - MODEL 3
Valuation Date 1/1/2020
Share Price on Valuation Date $25
Diluted Shares Outstanding 500

Select Operating Data

$mm Projected Annua
2017A 2018A 2019A 2020P
Revenue $5,300.0 $5,700.0 $6,000.0 $6,600.0
Revenue Growth Rate (%) 10.0%

EBITDA $2,000.0 $2,080.0 $2,150.0 $2,310.0

EBITDA Margin (%) 35.0%

EBIT 1,700.0 1,750.0 1,800.0 $1,980.0

EBIT Margin (%) 30.0%

Depreciation & Amortization $300.0 $330.0 $350.0 $369.6

D&A as a % of revenue 5.6%

Select Balance Sheet And Other Data

$mm Projected Annua
2017A 2018A 2019A 2020P
Cash $700.0 $1,000.0 $1,500.0 $1,500.0
Accounts Receivable 1,100.0 1,250.0 1,350.0 1,485.0
Inventories 900.0 925.0 935.0 949.0
Prepaid Expenses 50.0 63.0 75.0 89.7

Accounts Payable $930.0 $960.0 $1,000.0 $1,015.0

Accrued Expenses 90.0 88.0 93.0 $102.3

Debt 2,300.0 4,750.0 4,250.0 4,250.0

Capital Expenditures 455.0 488.0 535.0 588.5

Accounts Receivable Growth (%) 10.0%

Inventories Growth (%) 1.5%
Prepaid Expenses Growth (%) 19.6%
Accounts Payable Growth (%) 1.5%
Accrued Expenses Growth (%) 10.0%
Capital Expenditures Growth (%) 10.0%

Long term growth rate 4.0%

Tax rate 40.0%
Cost of Debt 5.2%
Cost of Equity 15.0%

Calculation of FCFs
$mm Projected Annua
2020P
EBITDA $2,310.0
Less: D&A $369.6
EBIT 1,940.4
Less: Int. 221
EBT 1,719.4
Less: Tax 687.76
EAT 1,031.6
Add: D&A $369.6
Less: CAPEX (588.5)
Changes in Working Capital:
Accounts Receivable (135.0)
Inventories (14.0)
Prepaid Expenses (14.7)
Accounts Payable 15.00
Accrued Expenses 9.30
FCFs 673.3

Calculation of WACC
Capital Amount w c wc
Debt 4,250 0.25 0.03 0.01
Equity 12500 0.75 0.15 0.11
Total 16,750 12%

Calculation of PV of FCFs
Period 1
Discount Rate 12%
Discount Factor 0.892971382266388
PV of FCFs 601.251026250693
Total 2951.23287785347

Calculation of PV of TV (Perpetual Growth Method)

Discount Rate 12%
Growth Rate 4.0%
TV 13703.7598420431
PV of TV 7780.85717954401

Calculation of EV to Equity
Enterprise Value 10732.0900573975
Less: Debt 4,250.0
Add: Cash $1,500.0
₹ 7,982.09

Per share value ₹ 15.96

Conclusion Shares are Overvalued, hence SELL

Projected Annual Forecast
2021P 2022P 2023P 2024P
$7,326.0 $8,205.1 $9,271.8 $10,477.1
11.0% 12.0% 13.0% 13.0%

$2,564.1 $2,871.8 $3,245.1 $3,667.0

35.0% 35.0% 35.0% 35.0%

$2,197.8 $2,461.5 $2,781.5 $3,143.1

30.0% 30.0% 30.0% 30.0%

$388.3 $336.4 $435.8 $461.0

5.3% 4.1% 4.7% 4.4%

Projected Annual Forecast

2021P 2022P 2023P 2024P
$1,500.0 $1,500.0 $1,500.0 $1,500.0
1,648.4 1,846.2 2,086.2 2,357.4
1,001.2 1,092.3 1,200.5 1,319.3
106.5 123.1 139.1 160.4

$1,070.8 $1,168.3 $1,283.9 $1,411.0

$113.6 $127.2 $143.7 $162.4

4,250.0 4,250.0 4,250.0 4,250.0

653.2 731.6 826.7 934.2

11.0% 12.0% 13.0% 13.0%

5.5% 9.1% 9.9% 9.9%
18.7% 15.6% 13.0% 15.3%
5.5% 9.1% 9.9% 9.9%
11.0% 12.0% 13.0% 13.0%
11.0% 12.0% 13.0% 13.0%
Projected Annual Forecast
2021P 2022P 2023P 2024P
$2,564.1 $2,871.8 $3,245.1 $3,667.0
$388.3 $336.4 $435.8 $461.0
2,175.8 2,535.4 2,809.4 3,206.0
221 221 221 221
1,954.8 2,314.4 2,588.4 2,985.0
781.9288 925.7528 1035.34 1193.99921
1,172.9 1,388.6 1,553.0 1,791.0
$388.3 $336.4 $435.8 $461.0
(653.2) (731.6) (826.7) (934.2)

(163.4) (197.8) (240.0) (271.2)

(52.2) (91.1) (108.1) (118.8)
(16.8) (16.6) (16.0) (21.3)
55.82 97.45 115.66 127.11
11.25 13.63 16.53 18.68
742.7 799.0 930.1 1,052.2

2 3 4 5

0.797398 0.712053 0.635843 0.56778995

592.2226 568.9053 591.3985 597.455486