DCF Analysis

Discounted Cash Flow Analysis

Basis of every valuation is the analysis of the incremental free cash flows to the firm and to equity after taxes. Each cash flow is discounted with its specific risk-adjusted discount rate. Key points are:

  • Project, time and decision framing
  • Incremental free cash flow analysis (investor’s point of view)
  • Interdependency / correlation to other investment decisions
  • Cash flow specific risk-adjusted discount rates acc. to Component Cash Flow Procedure (CCFP)
  • Expected value and variance analysis of free cash flows
  • Industry segment, company, project and cash flow specific WACC, betas and discount rates
  • Country and small cap risk premium
  • Corporate capital structure (dept, equity, cash, preferred stock)
  • Leveraged betas for different capital structure strategies (e.g. Hamada)
  • Cash flow specific tax adjustment of discount rates
  • Synthetic rating
  • Risk-adjusted Net Present Value (NPV)
  • Adjusted-Present-Value (APV)
  • Flow-to-Equity (FTE)
  • Capital Asset Pricing Modell (CAPM)
  • Arbitrage Pricing Theory (APT)
  • (Un)Leveraging beta, operating leverage
  • Taxes and inflation
  • Various dynamic currency exchange rates and countries
  • Annuity valuation
  • Internal Rate of Return and Baldwin Rate of Return
  • Linear Programming (LP), Operations Research (OR)
  • Capital budgetierung, profitability index and annuity
  • Project portfolio management
  • Static valuation methods (costs, profits, EVA, …)
  • Leasing (Lease or Buy)

Project Data

The following data types are included as standard and customized to the specific project: sales volumes, sales prices, sales deductions, variable unit costs, BOM, fixed costs, fixed assets, stocks, receivables, liabilities, depreciation, one-off items, taxes, exchange rates, inflation, discount rates, WACC, interest structure, capital structure, etc . All data are included in the required level of detail in any currency. Currency exchange rates, interest rates, tax rates and corporate capital structure can be defined for all time periods separately.


Results of a DCF analysis are many economic key figures and their development over time: Free Cash Flows to the firm and to equity, EBITDA, depreciation, EBIT, taxes, cost of capital, liquidity, amortization period, NPV, IRR, EVA, final value-related key figures, MIRR Baldwin return and many more. Most important is the risk-adjusted net present value (NPV). It represents the additional value of the project for investors relative to their existing security portfolio, or according to the CAPM to the capital markets. Some typical pitfalls of DCF analysis are summarized here.

Once the basic DCF model is set up, the next steps are decision tree analyzes, strategic risk and opportunity analyzes with Monte-Carlo-Simulation and Real Options Analysis.

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