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In this course, we’ll look at the various methods for conducting DCF valuations (no growth, constant growth and variable growth), source of input values and when each is appropriate.
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We’ll explain the rationale for using free cash flows versus other measures of net resource flows (e.g. dividends, earnings, EBITDA, etc.) when valuing a firm or its common equity. We’ll also learn how to calculate free cash flow (to the firm and to the equity holders) using information from corporate financial statements
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Next, we’ll discuss the factors that would need to be factored into a free cash flow projection for a DCF valuation, including but not limited to issues impacting sales growth, margins (net and operating) and leverage (operating and financial).
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We’ll also cover the macroeconomic, industry sector and company-specific factors that color the context for cash flow projections (e.g. industry/product lifecycle or competitive analysis).
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Next, we’ll learn how to calculate a terminal value for a DCF valuation and discuss issues regarding the sensitivity of a terminal value to assumed growth and discount rates as well as a factor related to the determination of reasonable estimates for those inputs.
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We’ll also learn how to calculate the value of a firm and the value of its equity using DCF analysis given the appropriate free cash flow projections and discount rates.
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Next, we’ll discuss alternative methods for determining enterprise value and equity value based on either excess cash and non-operating assets or economic profit and invested capital.
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We’ll wrap up this course with a look at the components of the widely used valuation ratios and how they are employed in assessing relative value.
This course is part 3 of the New York Institute of Finance’s Corporate Finance & Valuation Methods Professional Certificate.
