A company is worth the cash it will produce. This class builds a discounted cash flow model from the ground up — then shows you how to source every input and verify it before you trust it.
Read the anatomy of a DCF, build a basic one yourself, and source the inputs responsibly. By the end you can run a five-year DCF on a single company and defend every assumption.
Why a business is worth its future cash, discounted back to today. Cash that arrives later is worth less now — so we shrink it. Earnings can be shaped; cash is harder to fake.
Forecast free cash flow, the discount rate, terminal value, present-value mechanics, and model structure — and how each assumption links to the valuation output.
A single company, short horizon, in a structured spreadsheet. Project cash, discount each year, add the terminal value, and read out an intrinsic value.
AI-assisted research to gather your inputs fast — and the cite-or-verify discipline that keeps a hallucinated number out of your model.
Where DCFs go wrong: unrealistic growth, terminal-value dominance, discount-rate sensitivity, and false precision. The checks that keep a model honest.
A DCF estimates intrinsic value: the present value of every dollar of free cash flow a business is expected to generate, discounted back to today. Cash that arrives later is worth less now — so we shrink it. Earnings can be shaped by accounting choices; cash is harder to fake, which is why a DCF starts there.
Every DCF is the same five parts wired together. Get the structure right and the model stays honest: change one assumption and the output updates, cleanly and traceably.
The cash a company keeps after running and reinvesting in itself. Start from operating cash flow, then subtract capital expenditures.
The annual return required to compensate for time and risk. A higher rate makes future cash worth less today. At beginner level it is stated, not derived.
Everything beyond the explicit forecast window, collapsed into one number at the end — then discounted back like any other cash flow.
Shrinking each future cash flow back to today's dollars by dividing by the discount factor for its year.
How assumptions flow through drivers to the valuation output. Keep every input in one labeled block — never bury a number inside a formula.
Same machinery every time: project cash, discount each year, add the terminal value, and sum. The figures below are hypothetical — chosen to illustrate the mechanics, not to represent any specific company.
| Year | FCF ($M) | Discount factor @10% | Present value ($M) |
|---|---|---|---|
| 1 | 120.0 | 0.909 | 109.1 |
| 2 | 129.6 | 0.826 | 107.1 |
| 3 | 140.0 | 0.751 | 105.2 |
| 4 | 151.2 | 0.683 | 103.2 |
| 5 | 163.3 | 0.621 | 101.4 |
| TV | 2,402 | 0.621 | 1,491.6 |
A DCF is only as good as its inputs. Use Perplexity to gather them quickly — then confirm each number against the filing. Treat AI answers as leads, not citations.
A DCF is a reasoned estimate, not a price target. The same four failure modes catch beginners and professionals alike — in the worked example above, roughly 74% of the value came from terminal value, which is exactly the kind of thing to stress-test.
Unrealistic growth quietly inflates the whole answer. Keep g modest and defensible.
If most of the value sits in TV, your perpetual-growth assumption is doing the heavy lifting.
A one-point change in r can swing value by double digits. Always test a range.
You have built the muscle for valuation by cash flow. Next: derive the discount rate from WACC, and run a reverse DCF to see the growth the market is already pricing in.