Discounted Cashflow (DCF) with Scenario Analysis

Description
Thediscounted cash flow valuation is an intrinsic valuation methodology. Itincorporates the future free cash flow projections of the business to determinethe present value of the business. The cash flows are discounted to the presentusing the weighted average cost of capital (WACC).

Key Assumptions
Macro Assumptions: Currency, GDP growth rate, inflation rate, interest policy
Capital Structure: Equity ratio, debt ratio
Cost of Capital: determine WACC by using the cost of debt and the cost of equity
Business Operations: initial revenue, revenue CAGR, COGS ratio, OPEX ratios
Working Capital: receivable days, inventory days, payable days
Capex: purchase date, purchase amount, salvage value, economic life, depreciation methodology
Debt Schedule: loan principal amount, drawdown date, interest rate, tenor, principal amortisation approach

DCF Analysis: EBITDA multiple, perpetuity growth rate, fully diluted shares (FDS), closing cash balance.

Unlevered Free Cash Flows
The projected free cash flows from the business operations.
It is the free cash flow that accrues to both equity shareholders and debt investors.
It's the cash flow after deducting tax, working capital and maintenance capital expenditure from the EBITDA amount.

EBITDA is utilised as a proxy for cash flow from operations.

Tools
Utilise these tools:
· CAPM formula
· the Hamada equation (to unlever market beta)
· Sensitivity analysis tools (data table)

· Scenario analysis (VBA macro)