The three most important valuation techniques - DCF
9 important questions on The three most important valuation techniques - DCF
What is the most thorough valution method?
What does Rf stand for in cost of equity?
What does Rm stand for in cost of equity?
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What is the formula of debt ratio (DA) in WACC?
How is FCF calculated from EBIT (operating income)?
+ D&A
= EBITDA
- increase in working capital
- capex
- cash taxes
= FCF
What is the formula of working capital?
What are three advantages of DCF valuation?
- Very thorough and capable to accurately value cycles.
- True cash-flow based valuation; no approximation.
- Capable to value businesses that are temporarily unprofitable.
What are two disadvantages of DCF valuation?
- Complicated and complex, therefore time-consuming to develop.
- Due to the vast number of parameters, a plausible DCF outcome varies substantially between the lowest and the highest plausible value (every parameter is subject to views and opinions).
What happens to WACC if the interest rate increases?
Higher corporate taxes increase WACC, while lower taxes reduce WACC.
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