Value investing · Course 33 of 39 · Valuing a business
What a DCF can and cannot settle
A discounted cash flow on one real company, from filed figures, with the terminal share measured, the discount rate stressed and the answer left as a range.
The arithmetic of a discounted cash flow is not in dispute. Everything that goes into it is, and the model is obedient: it returns a number for any set of inputs, including a set nobody could defend.
This course builds one on a real company, Procter and Gamble, from its own filed statements, and then measures what the answer actually rests on. Which of three cash flow definitions you used. How much of the total sits past the forecast. What one point on the discount rate does. What a growth rate costs in reinvestment, and whether the company is spending it.
It ends where an honest model ends: with a range, a written list of the assumptions behind it, and a short list of companies where the right answer is not to build one at all.
It assumes you can read a cash flow statement and that you have met a discount rate before.
The model, not your inputs
What a DCF can and cannot settle is 8 lessons on how a valuation is built and which assumption it really turns on. Every input is still yours to supply, this course supplies none of them, and a model with no company in it produces no number you can act on.
Related
- Discounted cash flow against NPV is the short version of the model this course spends eight lessons inside.
- What the price already assumes runs the same model backwards, which is the exercise this course argues for whenever the forward run is unreadable.
- DCF calculator is the two-stage engine every figure in this course was computed on.
See our methodology for how the product reads a filing and what it refuses to compute.