Transcript intro 2013 spring Stock DCF Valuation.pptx

Stock DCF Valuation
Simulations
Dixon Liang
Tiffany Zeyu
Overview
• Use inputs of discounted cash flows to predict various stock
prices in the future
• Various types of stocks from micro-cap growth to value blue-chip
• Add a simulation (similar to Monte Carlo) to further
predictions, adding probability, run simulation using DCF
inputs
• Ex. If revenue has a 50% change of increasing by 30%, what
could happen to the stock price in the future?
Discounted Cash Flows
• A foundation of investment banking, one of the most used
techniques to value a company ahead of a merger, acquisition,
capital raising activity, etc.
• Taking all future cash flows, and discounting value to present
value to come up with an estimate of company worth
• Various inputs from revenue growth to capital expenditures
Monte Carlo Simulation Aspect
• Use a random number generator to replicate probability of a
certain event such as revenue growth
• Run determined number of trials and aggregate results
• If rand(100) < 50 then…
• Ex. 50% chance of 30% increase in revenue, run 1,000 times, how
many of those 1,000 times results in 30% increase in revenue,
etc.
• Can either create a simple program from scratch or build
model on Excel depending on human resources and logistics
Timeline
February: Establish team members
Finalize plans
Learning and familiarizing with DCFs
Picking stocks to work with
March:
Begin working on simulator aspect
April:
Presentation
Benefits for Analysts
• Great learning experience for all interests from investment
banking to quantitative finance
• Become very familiar with DCFs, valuating a stock,
modeling/simulations, etc.
• Adding value to create something concrete in the process
• Want every member to be directly involved, won’t just be
watching others
• Ability to use program or model in the future
• Great resume builder and talking point in future interviews
• Interested? Talk with Dixon or Tiffany afterwards