Originally published: 23/03/2018 13:03
Publication number: ELQ-63243-1
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Calculating Discounted Cash Flow in Excel

This video takes you through a DCF Excel model to show you how to calculate Discounted Cash Flow.

DCF Valuation is a useful tool when the market lacks comparable companies. It involves a method in which some steps take into account the firm's inflation rate, capital structure, growth of the company, growth of the economy, working capital management, project risk factor, required future capital expenditure. etc.

The inputs required for DCF Models are:
-Discount rates: Cost of Equity and Cost of Debt
-Expected Cash Flows: Dividends, FCFE, and FCFF
-Expected Growth Rate

Step-by-Step DCF Method:
1. Measure/Forecast the Free Cash Flow
2. Estimate the Weighted Average Cost of Capital/cost of Equity
3. Use the Weighted Average Cost of Capital to discount Free Cash Flow
4. Estimate the Terminal or Residual Value
5. Use the Weighted Average Cost of Capital to discount Terminal Value
6. Estimate the Total Present Value of the Free Cash Flow
7. Add in the value of Non-Operating Assets
8. Take away the value of Liabilities assumed
9. Calculate the Common Stock value

Length: 8 minutes 54 seconds

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