![]() ![]() ![]() DCF Model, Step 1: Unlevered Free Cash Flow Its annual filing repeatedly cited its total square feet, so we made the total retail square feet the top-line driver and based other numbers on $ per square foot figures. We recommend reading through the annual report and investor presentation to the extent that you can come up with those 5-10 key drivers.įor Walmart, we came up with the following: In theory, you could spend days, weeks, or months on industry and company research, but that much effort is not necessary. You could also search for industry data from companies like IDC, Gartner, and Forrester, but it’s not necessary for a quick analysis of a mature company.Īnd if you are dealing with a rapidly changing company or a tech startup (e.g., Uber or Snap), it’s often more useful to get KPIs and financial stats from similar companies that were once growing quickly but have since matured. The company’s annual report and investor presentations are the best starting points. What do its historical trends look like, ideally going back 5-10 years?.How can you project its revenue beyond a simple percentage growth rate? What about its expenses?.What are the top 5-10 most important drivers for the company?.Company/Industry Researchīefore you jump into Excel and start entering numbers, you should do a bit of company and industry research to establish the following: You value the company in both these periods and then add the results to get its total value from today into “infinity” (AKA until the Present Value of its cash flows falls to near-0). Its Cash Flow will still change, but the valuation formula above works because it requires only the first year of Cash Flow in this period. Period #2 (Terminal Period): The Discount Rate and Cash Flow Growth Rate stop changing because the company is mature.Period #1 (Explicit Forecast Period): The company’s Cash Flow, Cash Flow Growth Rate, and potentially even the Discount Rate change over 5, 10, 15, or 20+ years, but the company reaches maturity or “stabilization” by the end.To represent that change, you divide companies’ lifecycles into two periods: Valuation is more than this simple formula because companies’ Discount Rates and Cash Flow Growth Rates change over time. If a company’s Discount Rate and Cash Flow Growth Rate stayed the same forever, then investment analysis would be simple: just plug the numbers into this formula.Ĭompanies grow and change over time, and often they are riskier with higher growth potential in earlier years, and then they mature and become less risky later on. The company is also worth less when it is riskier or when expectations for it are higher, i.e., when the Discount Rate is higher. The “Discount Rate” represents risk and potential returns – a higher rate means more risk, but also higher potential returns.Ī company is worth more when its cash flows and/or cash flow growth rate are higher, and it’s worth less when those are lower. The big idea is that you can use the following formula to value any asset or company that generates cash flow (whether now or “eventually”): Snap Valuation and DCF – Different DCF model for a different high-growth company.Uber Valuation and DCF – Different DCF model for a high-growth company (sort of).Walmart DCF – Corresponds to this tutorial and everything below.34:15: Common Criticisms of the DCF – and ResponsesĪnd here are the relevant files and links:.28:46: DCF Model, Step 3: The Terminal Value.21:46: DCF Model, Step 2: The Discount Rate.8:36: DCF Model, Step 1: Unlevered Free Cash Flow. ![]()
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