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A hands-on guide to DCF theory and modeling: how to value companies in the real world
Discounted Cash Flow valuation is the cornerstone of modern valuation theory—an intellectual exercise that requires business acumen, financial modeling skills, and a solid grasp of company valuation know-how. Whether you’re a financial analyst, an investment banker, or an investment analyst, our Discounted Cash Flow Valuation course will teach you a fundamental skill that is highly sought-after in the finance world. This practical course straightforwardly introduces the theory behind DCF modeling. These lessons address the two key factors that drive company value, the importance of a business from an investor’s perspective, calculating a firm’s future cash flows, the discount rate for the time value of money, calculating the average weighted cost of capital, and obtaining a businesses’ value after the explicit forecast period. You’ll learn the fundamental theory behind Discounted Cash Flow valuation in less than one hour. You'll apply your theoretical knowledge in the second part of the course and practice your DCF modeling skills in Excel, skipping no steps. In addition—to account for ambiguity—we'll build a few different scenarios into the model, allowing users to switch between them effortlessly. All of this will help you uncover the fair value of businesses through fundamental analysis, which will prove to be an indispensable skill throughout your career
The Discounted Cash Flow Valuation course teaches you the fundamental principles of company valuation via a hands-on approach. Each lesson is focused on the practical skills needed to build a DCF model.
The first section of our Discounted Cash Flow Valuation course starts by providing context about the two variables that determine a company’s value in the long run: revenue growth and profitability. Then the lessons focus on the mechanics of Unlevered Free Cash Flow calculation and the appropriate discount to be used when discounting UFCF: Weighted Average Cost of Capital (WACC). The course explains in detail practical ways to obtain a firm’s cost of debt and equity. Lastly, students will learn how to obtain Terminal Value—the value of a firm after the explicit forecast period.Why value a company? Free An investor's perspective Free Defining the two main value drivers Free How to calculate Unlevered Free Cash Flow Introducing a discount factor: Weighted average cost of capital Calculating cost of debt Calculating cost of equity Forecasting financials in the explicit forecast period How to obtain Terminal Value Obtaining present value of cash flows from the explicit forecast period and Terminal Value Calculating Enterprise and Equity Value
In the second part of the course, students are engaged in their own real-life DCF modeling in Excel. The lessons are easy to understand and allow a hands-on learning experience with the theory learned earlier.Structure of the DCF Model we will create The company we will value Forecasting revenue growth Modeling for multiple scenarios Forecasting Other revenue and Cogs Calculating Opex and Depreciation and Amortization Obtaining the rest of Profit and Loss items Overview of Balance sheet items Introducing the Days methodology to forecast working capital items Calculating DSO, DIO, DPO for the historical period Forecasting DSO, DPO, DIO Forecasting PPE, Other assets, Other liabilities P&L structure Filling in the P&L sheet Filling in the Balance sheet Completing the Balance sheet Working on a Cash Flow structure Bridging Unlevered Free Cash Flow to Net Cash Flow Calculating Unlevered Free Cash Flow Calculating Net Cash Flow Filling in the entire forecast period Introducing a discount factor and a perpetuity growth rate Calculating the present value of future cash flows Obtaining Terminal Value and Enterprise Value Calculating Equity Value Performing a sensitivity analysis A modeling application of Goal Seek Visualizing DCF: Understanding financial projections through charts
with Ned Krastev