Transcript Module 13 – Cash-Flow-Based Valuation

FINANCIAL STATEMENT
ANALYSIS & VALUATION
Third Edition
Peter D.
Easton
©Cambridge Business Publishers, 2013
Mary Lea
McAnally
Gregory A.
Sommers
Xiao-Jun
Zhang
Module 13:
Cash-Flow-Based
Valuation
©Cambridge Business Publishers, 2013
Discounted Cash Flow (DCF)


FCFF = NOPAT – Increase in NOA
The DCF valuation of common stock involves 5 steps:
1. Forecast and discount free cash flows to the firm (FCFF) for the
2.
3.
4.
5.
horizon period.
Forecast and discount FCFF for the post-horizon period, called
the terminal period.
Sum the present values of the horizon and terminal periods to
yield firm value.
Subtract the value of the firm’s debt (NFO) from the value of
the firm.
Divide this amount by the number of shares outstanding to yield
the estimated per share stock price
©Cambridge Business Publishers, 2013
Discounted Cash Flow Model
©Cambridge Business Publishers, 2013
Analysts’ Forecasts
©Cambridge Business Publishers, 2013
End Module 13
©Cambridge Business Publishers, 2013