How discounted cash flow method is used as a valuation technique?

    Posted By : Ekta / Published on : 15-Sep-2017 05:31 PM / View : 796 / Comment : 1
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    Explain the steps to be followed in valuation procedure by discounted cash flow method. How can we say that it is easiest to use for assets and firms whose cash flows are currently positive?
    Read more on : valuation technique used method cash flow discounted

    • The steps we will use will be as follows.
      1. Locate all the required financial data.
      2. Calculate the discount rate and use it to discount the future value of the business.
      3. Perform a discounted free cash flow (DCF) analysis.
      4. Calculate the company's net present value (NPV).
      5. Calculate the company's terminal value (TV).
      6. Calculate the intrinsic value.

      Intrinsic Value = Net Present Value (NPV) Discounted Terminal Value (DTV)

      Intrinsic Value Per Share = Intrinsic Value Cash – Debt / Total Shares Outstanding

      You can see through formula that while Computing Intrinsic Value per Share (Which is the difference between Market Price of Share and Share's Price based on Net Assets in the books of entity), Cash is an important ingredients to this. So Positive Cash Flow makes it easier to Compute.

      24-09-2017 / 02:19:13 PM

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