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Discounted Cash Flow (DCF) Analysis Discounted Cash Flow (DCF) Analysis is a valuation method that estimates the value of a company based on its projected future cash flows, which are then discounted to their present value. DCF is particularly useful for valuing startups or companies with predictable cash flow patterns.
Calculate cost of debt, cost of equity, and weighted average cost of capital (WACC). For interest income and expense, I prefer to state them as percentages of the average debt balance of the last two years. It is a good practice to verify the intended debt-vs-total-capital balance post-transaction when possible.
To perform this analysis, the following are needed: A peer group of 5 or more similar businesses: Can be obtained from sources such as S&P Capital IQ report; or individual research. Information listed in the DCFanalysis: See the items listed under DCF above.
At the junior levels , entry-level professionals in both fields spend a lot of time in Excel working on models, valuations, and documents such as equity research reports and investment banking pitch books. Investment Banking: Which Ones Right for You?
Below are the six recognized methodologies with short explanations of each: Discounted Cash Flow (DCF) Analysis: This analysis derives an ‘intrinsic’ value of a company. Leverage Buyout (LBO) Analysis: LBO analysis focuses on a company’s ability to generate cash flow.
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