Discounted Cash Flow (DCF) Model Excel Template
Originally published: 21/03/2018 16:18
Publication number: ELQ-52155-1
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Discounted Cash Flow (DCF) Model Excel Template

This is a valuation tool known as the DCF model. This is an Excel template.

One method an investor could use to determine the value of a company involves conducting a discounted cash flow analysis.
An example of a series of assumptions an investor could use to calculate a companies intrinsic value under the Three-Stage DCF, for example, are:

1: an initial cash flow of $10,000
2: a discount rate of 15% (the user should insert his required return here)
3: cash flows grow at a 14% rate for the first 5 years, a 10% rate for the next 5 years, and a 5% rate for the final 5 year period
4: the investor uses a terminal growth rate of 3%
5: the company has 10,000 shares outstanding and pays no dividends.

Boxes that are highlighted in black are where users can plug in their own assumptions

As the name implies, a companies future cash flows are discounted back to the present to derive what a valuation for the company in question. The DCF Model is certainly not a perfect valuation tool (as it is very difficult to predict what a company will grow its cash flows at), but it can provide one estimate of value that, when combined with all the other components of a users research on a company, can help give an idea of what a company is worth. The user should also keep in mind that the Intrinsic Value that is produced is only as good as the numbers put into the model. If you assume unrealistic growth rates (or terminal value) you will get an unrealistic intrinsic value result. The investor should think of the Intrinsic Value figure given in this light: you need to pay the price given, or lower, in order to achieve a given return (i.e. the discount rate) on your investment if your assumptions are correct.

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1 DCF Model Template in Excel

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