The following video is borrowed from our BusinessTraining.com platform and was originally recorded for our investment banking training program. This video is the first in a free two-part training series on discounted cash flow analysis. To watch the first discounted cash flow analysis video, click here.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
Please be sure to watch the first video in this free two-part series on discounted cash flow analysis.
The following video is borrowed from our BusinessTraining.com platform and was originally recorded for our investment banking training program. This video is the first in a free two-part training series on discounted cash flow analysis. To watch the second discounted cash flow analysis video, click here.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
Please be sure to watch the second video in this free two-part series on discounted cash flow analysis.
The following video is borrowed from our BusinessTraining.com platform and was originally recorded for our financial modeling training program. In the following video, we continue to cover discounted cash flow valuation with a live demonstration of discounted cash flow valuation. If you would like to watch another free video on this topic, see discounted cash flow valuation.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Coming soon.
I hope that you enjoyed this live demonstration of discounted cash flow valuation. If you would like to watch another free video on this topic, see discounted cash flow valuation.
The following video is borrowed from our BusinessTraining.com platform and was originally recorded for our financial modeling training program. In the following video, we provide a detailed look at cash flow statements.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Cash flow statement typically has 3 categories; operating activities, investing activities and financing activities.
The first line item in the cash-flow statement is Net Income, which is the last line item in the Income Statement. In essence, you are trying to determine how much of the net income was a cash expense and how much was a non-cash expense that can be added back. A healthy company will have growing cash flow.
Depreciation and amortisation are non-cash expenses and are therefore added back to net income. Compensation as a result of an acquisition, in the form of stock for instance, is similarly not a cash expense and is added back. The difference between the actual and provision for doubtful accounts or inventory is added back or subtracted depending on the outcome. R&D and net gains/losses on investments needs to be considered and added/subtracted. All of the above are related to the Income Statement and expenses.
The following are in reference to the Balance Sheet (B/S). If Accounts Receivable decreased on the B/S, that means more people paid and we therefore add this difference as additional cash-flow. Inventory, pre-paid expenses, lease receivables, accounts payable, income taxes payable, accrued compensation and deferred revenue are further line items in the Cash flow Statement.
Adding the line items from points 3 and 4 above, provides the company with their Net Cash provided by Operating activities.
Companies also invest their cash proceeds, with some being more aggressive than others. Some of this might be expiring which results in proceeds added back to the cash-flow statement. There are also investments into the business such as on property, plant and equipment or on mergers and acquisitions. When all of these are added, it provides the company with their Net Cash provided by Investing activities.
A company may issue common stock or repurchase common stock, which needs to be accounted for in the cash-flow statement. Any changes in long-term debt or other financing activities also needs to be dealt with. Adding these up provides the company with their Net Cash provided by Financing activities.
Adding all of these changes and then taking account of the beginning cash balance provides the cash and cash equivalents figure.
I hope that this has given you a better understanding of cash flow statements.
The following video is borrowed from our BusinessTraining.com platform and was originally recorded for our financial modeling training program. There are many ways to value a company, each with its own merit and discounted cash flow valuation is one such method. In the following video, you see how to conduct a discounted cash flow valuation.
Video Transcript/Summary: The strategies and tips provided within this video module include:
Discounted Cash Flow (DCF) is one valuation method which discounts the expected future cash flows. DCF works of the concept; what will someone pay today for a future set of cashflows. A discount factor needs to be used to factor in risks. The present value of future cash flows is known as Enterprise Value.
Step 1 – Estimate EBIT, calculate taxes due and subtract taxes from EBIT, add back depreciation and amortisation and subtract routine maintenance capital expenses to determine the Free Cash Flow figure for each period, which is the figure you will use for discounting.
Models typically project out to 5 years. In order to project further out, a terminal value needs to be calculated. One approach might be to discount the 5th year FCF projection to eternity. Alternatively, an exit multiple based on comparable can be used.
Now the FCF and terminal values need to be discounted back to present values. This discounted figure is the Weighted Average Cost of Capital (WACC), which is based on the equity and debt of the company being valued.
Cost of Equity (Re) = Risk-free rate (Rf) + (Beta * Risk Premium). Rf is typically what you can get from a 10 year treasury, Beta measures the risk of a company relative to the broader market and Risk premium is company specific and includes factors such as revenue, liquidity, etc.
Cost of debt (Rd) = Weighted average interest rate on borrowings. Equity % = equity Capital / Total Capital and similarly, Debt % = Debt Capital / Total Capital.
Projected cash flows are at the end of the year but realistically, the business generates cash flow throughout the year. Therefore, modellers generally prefer to use Mid-Period discounting but this is not the case without the terminal value calculation, just the individual cash flow projections. Once these are all added up, the Enterprise Value (EV) is reached.
EV + Cash – Debt = Equity Value, where Equity Value is a proxy for the market capitalisation of the company. Equity Value / Total Shares Outstanding = DCF price per share.
Learning a variety of valuation methods is essential to succeeding as a financial professional. Discounted cash flow valuation is a useful way to ascertain the value of a company.
Below is a free to watch video module on discounted cash flow valuation. This is a core concept that you must understand well if you are going to work in financial modeling, investment banking, or complex financial analysis.
This video was taken from our Financial Modeling Specialist (FMS) program which is our financial modeling certification and training program hosted on our BusinessTraining.com platform.
Video Transcript Summary of Discounted Cash Flow Valuation: Coming soon…
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