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DCF Excel summary

By Madhuri ThakurMadhuri Thakur

DCF Excel summary

Part – 17

In our last tutorial, we understood equity value and sensitivity Analysis.In this article we will understand DCF Excel summary.

Step 1 – Forecast the Income Statement and other FCFF drivers for the Explicit Period

DCF

Step 2 – Forecast Working Capital

DCF2

Step 3: Calculate FCFF using EBIT formula

DCF3

Step 4: Calculate Terminal Value

Method 1 – Perpetuity Growth Method

Perpetuity Growth Method

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When WACC = 10% & Growth rate  = 4.5%,

Terminal value example

Method 2 – Exit Multiple Method

Exit Multiple Method

When the EBITDA transaction multiple is 7x,

Exit Multiple example

Step 5: Terminal Value Reality check of assumptions

DCF8

Step 6: Extract the Capital Structure

DCF9

Step 7 – Understanding The Convertible Features :: Calculate ‘in the money’ convertible securities

DCF10

Step 8: Calculate ‘in the money’ stock options

DCF11

Step 9: Calculate value of Debt / Proportion of Equity & Debt in Capital Structure

 

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DCF12

Debt

DCF13

 

Total Capital = Debt + Equity 

Total Capital = 220.0 + 106.4 = 326.4

DCF14
The above proportions will be used to calculate the Weighted Average Cost of Capital (WACC).

Step 10 – WACC :: Cost Of Debt

Using synthetic rating method, we have Interest coverage ratio = EBIT / Interest Expense

Interest Expense for ABC company (small cap $257million) is 15; Interest coverage ratio = 50/15 = 3.33

 

DCF15

Pre tax Cost of Debt = Risk Free rate + default spread = 5.0% + 3.50% = 8.50%

Post tax cost of debt = 8.50% x (1-33%) = 5.70%

Step 11 – Calculate Cost of Equity & WACC

Identify the listed comparables and their Beta. Also, find the Unlevered Beta for comparables

DCF16

 

DCF17

Step 12: present value of the FCFF for the projected years

Calculate the Present Value of the Explicit Cash Flows using WACC derived above

 present value of the FCFF for the projected years

Step 13: Calculate the Present Value of the Terminal Value using WACC

(A) Terminal Value using Perpetuity Growth Method

Terminal Value using Perpetuity Growth Method

(B) Terminal Value using Exit Multiple Method

DCF20

Please note that the Terminal Value from both the approaches are not in sync. We may have to double check our assumptions on EBITDA Exit Multiples or the WACC/growth rate assumptions applied. Both the approaches should ideally give similar answers.

Step 14: Calculate the Enterprise value of the firm

By summing the (adjusted) present value of the projected free cash flows and the (adjusted) present value of the terminal value (whether calculated using the perpetuity method or multiple method), the result is the Enterprise Value of the modeled business.

DCF21

DCF22

Step 15 – Arrive at the Equity Value of the firm post Adjustments

DCF23 (1)

Step 16: Sensitivity Analysis of Key Inputs

The data table function is especially useful for conducting Share Price sensitivity analysis

DCF24

Recommended Articles

Here are some articles that will help you to get more detail about the DCF Excel summary so just go through the link

  1. Equity Value
  2. Employee Stock Options
  3. Unlevered Beta
  4. Levered Beta Formula
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