BALANCECHEAT / VALUATION
DCF Valuation Model
Turn an operating forecast into enterprise and equity value. Explore how margins, investment and working capital translate into unlevered free cash flow.
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Open the full valuation model
Continue in the full financial model with independent periods, scenarios, adjustments and detailed valuation assumptions.
Build value from operating assumptions
A discounted cash flow model connects a company’s operating plan to the cash available to all capital providers. Revenue growth alone does not create value: the resulting earnings must fund taxes, replacement investment and working capital. This preview builds a five-year forecast from explicit operating assumptions and discounts the resulting cash flows. Every default is an illustrative input, not a market estimate.
Use the full BalanceCheat model when individual revenue lines, personnel plans, debt schedules or scenario assumptions matter. Its DCF reads the existing statements, so changing a model input updates the valuation without another copy of the forecast.
From EBIT to FCFF
Start with EBIT and subtract unlevered operating taxes to obtain NOPAT. Add depreciation and amortization, subtract capital expenditures, and subtract the increase in operating net working capital. Include other operating or non-cash items only once. The result is FCFF: cash flow available to debt and equity holders before financing payments.
FCFF = EBIT − operating taxes + D&A − Capex − ΔNWC + other operating adjustments. An increase in receivables or inventory usually consumes cash; an increase in trade payables usually releases cash. Do not treat depreciation as cash investment or subtract debt repayments from FCFF.
Forecast horizon and discounting
Choose a horizon long enough to reach a defensible operating state. The model end does not have to be the DCF end. In the full workspace, you can begin in a later forecast year, end the explicit forecast earlier than the model, and select a separate terminal metric anchor. Year-end and mid-year discounting make cash-flow timing explicit.
A mid-year convention recognizes cash generated throughout a year. Stub handling prorates the remaining first period when the discount date falls inside that year. These choices change timing, not the economic definition of cash flow.
WACC and terminal reinvestment
WACC combines the cost of equity with the after-tax cost of debt using market-value capital weights. A direct WACC input is convenient for a first pass, but the full builder exposes risk-free rate, beta, equity risk premium, optional premiums and capital structure. Use inputs consistent with the currency and risk of the forecast.
Perpetuity value equals next-year sustainable FCFF divided by WACC less perpetual growth. Long-run growth requires a consistent reinvestment policy. A business cannot generally grow forever while capital expenditure and working-capital requirements disappear. Use terminal normalization when the final forecast year contains temporary margins or investment.
Interpret enterprise and equity value
Enterprise value is the present value of operating cash flows plus terminal value. Equity value adds non-operating assets and cash, then subtracts debt and other senior claims. Leases, minority interests, pension deficits and investments require consistent treatment across the forecast and bridge.
A large terminal-value contribution indicates dependence on long-run assumptions. Compare reasonable WACC and growth sensitivities, then cross-check trading multiples. A narrow spreadsheet output does not mean the valuation itself is precise.
Questions to resolve before relying on the result
Should adjusted EBITDA automatically increase cash flow? No. A normalization item may improve an analytical earnings measure without creating recurring cash. Use a flow-through adjustment only when the underlying operating economics support it.
Can WACC equal terminal growth? The perpetuity formula is undefined at equality and economically unsuitable below it. Can you use equity cost to discount FCFF? Generally no: match the discount rate to the cash-flow claim. The full workspace keeps reported and adjusted bases selectable for each method.