Finance professionals often use the discounted cash flow or DCF valuation method to determine the value of an investment opportunity or a company. A DCF valuation model requires a future free cash flow projection of a company and discounts the expected future cash flows to their present value by applying an appropriate discount rate which reflects the risk of investing in that company. Most DCF valuations focus on the free cash flow to firm, which reflects the cash flows obtained from a business without taking yet into account the debt/equity financing structure.
In order to obtain a meaningful valuation result, the cash flow forecast needs to clearly state where cash is generated and where cash is spent in order to be credible. Therefore, an extensive analysis of a company’s situation, its historic results and origins of profits is required as well as a clear analysis of the drivers of the company’s future revenues, costs, capital expenditures and their impact on the required net working capital. Credible DCF valuations in most cases will use a bottom-up approach where the business’s drivers of revenues and costs are used to calculate the projected financials. A good Discounted Cash Flow Valuation model template also offers an easy way to run sensitivity analysis to show the impact on the company’s valuation if certain key assumptions change to the better or the worse.
Creating a discounted cash flow valuation model from scratch on your own can be quite a daunting task that may require time and know-how to do so. Also, there is financial modeling know-how required in order that the analysis is technically correct. A good solution can be to download a discounted cash flow valuation model template from a trusted internet platform. Such template provides a DCF valuation framework which can then be adjusted according to a business’s specific business model and circumstances by modifying the sources of revenues and cost lines.
eFinancialModels is a one stop financial modeling platform providing a variety of industry-specific financial model templates. The platform allows an easy way to download a discounted cash flow valuation model template which then can easily adjusted as per your own choice.