CFO Wise:
VALUATION BASICS
• CASH IS KING • The value of your firm is mostly related to your ability to generate cash flow
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DISCOUNTED CASH FLOW
• The Discounted Cash Flow Valuation Model – Determine the Free Cash Flow (FCF) of the firm into perpetuity, discount those cash flows back at a reasonable and market/riskadjusted rate, and determine the value of the future cash flows
(C) Copyright 2009 CFOwise
DISCOUNTED CASH FLOW
(C) Copyright 2009 CFOwise
EBITDA MULTIPLE METHOD
• A shortcut approach to determining the cash flow that a business generates is to use indicators just on the P&L • EBITDA stands for: EARNINGS BEFORE: – INTEREST – TAXES – DEPRECIATION – AMORTIZATION • How close is that to real cash flow?
(C) Copyright 2009 CFOwise
EBITDA MULTIPLE METHOD
(C) Copyright 2009 CFOwise