DCF valuation

This is not a full company valuation training course, but one way of valuing a business is to view a company as the sum of its discounted cash flows.

Discounted Cash Flows (DCF)

Under the DCF valuation methodology, the company is seen as the sum of its projected cash flows. Cash flows that are further out are seen as more risky – i.e. there is less certainty about whether the cash flow might be delivered. The further away a cash flow, the more it is discounted or reduced. Under the DCF valuation methodology, cash flows are projected into the future, with cash flows that are a long way into the future discounted heavily. Cash flows are then totalled to calculate the value for the company.

DCF: just an overview

DCF valuation

The explanation above is just gives you the very briefest overview of discounted cash flow valuation. Financial Training Associates’ valuation training course provides much greater detail. The main ‘takeway’ from the valuation course material here is that two main methods are used in company valuation: (i) comparable company valuation (valuing a business as a multiple of its earnings) or (ii) discounted cash flow/ DCF valuation (valuing a company as the sum of its cash flows).

Proceed with the valuation course

Next the valuation course goes on to compare DFCF against enterprise value.