A Tutorial on the Discounted Cash Flow Model for Valuation of Companies
AbstractAll steps of the discounted cash flow model are outlined. Essential steps are: calculation of free cash flow, forecasting of future accounting data (income statements and balance sheets), and discounting of free cash flow. There is particular emphasis on forecasting those balance sheet items which relate to Property, Plant, and Equipment. There is an exemplifying valuation included (of a company called McKay), as an illustration. A number of other valuation models (abnormal earnings, adjusted present value, economic value added, and discounted dividends) are also discussed. Earlier versions of this working paper were entitled "A Tutorial on the McKinsey Model for Valuation of Companies".
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Business Administration with number 1.
Length: 55 pages
Date of creation: 18 Jun 1998
Date of revision: 22 Jun 1999
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Valuation; free cash flow; discounting; accounting data;
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-11-01 (All new papers)
- NEP-CFN-1999-11-01 (Corporate Finance)
- NEP-FMK-1998-06-22 (Financial Markets)
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- Jennergren, L. Peter, 2009. "On the forecasting of lease expense in firm valuation," Working Paper Series in Business Administration 2009:12, Stockholm School of Economics, revised 02 Dec 2009.
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