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Build A Full Discounted Cash Flow Model for a REAL Company
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- เผยแพร่เมื่อ 17 ส.ค. 2024
- Create a full discounted cash flow valuation model from scratch on Excel.
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In this video you'll learn to do a full discounted cash flow (DCF) valuation on a real company.
First, we gather all the data. In this case it's the three financial statements from the company's annual report. Second, we begin forecasting the free cash flows. In order to do so, we create revenue projections, as well as a fixed assets schedule and a net working capital projection.
Third, we calculate the WACC, short for the weighted average cost of capital in order to discounted all the future cash flows back to the present value.
Fourth, we calculate the terminal value, which is the value of the company after the forecast period. Then, we discounted the TV and the FCFs to get the enterprise value.
Lastly, we calculate an implied share price by going from enterprise value to equity value, and dividing by the diluted shares outstanding. Finally, we create a sensitivity table to see how chaining the WACC and the growth rate affects our valuation.
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Chapters:
0:00 - Projecting cash flows
3:28 - Fixed Assets Schedule
5:35 - Calculating Free Cash Flow
15:42 - Calculating the WACC
22:52 - Calculating the Terminal Value
25:12 - Calculating an Implied Share Price
26:34 - Sensitivity Table
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Awesome
For anyone wondering @14:51, Kenji SUBTRACTS the Change in NWC because it is a negative value, and subtracting a negative is actually an addition. Because technically, a DECREASE in NWC needs to be ADDED to calculate FCFs.
So if our own individual change in WC is positive then we would +change in WC not subtract?
You are right. He seems to have made a mistake
also why does he add the growth rate for the TV?th-cam.com/video/77xkumpio48/w-d-xo.html
@@alisherzhakaibekov1620 He did the right thing.
When you have two negative signs, one turns over, and they add together to make a positive.
@@olayemitemidayo9023 adding two negative values will still give negative unless you multiply. I guess he made a mistake on that part. More so, increase in current liabilities means that business has more short term cash available, while increase in current assets (inventories and receivables) means that less cash is available.
Spent the last couple of weeks practicing DCF, now I feel comfortable to attempt to construct a DCF from scratch. Thanks Kenji!
You should've also educated us about the Assumptions and all
I think assumptions may be based on nature of industry and company so it is quite hard to explain through some videos.
Or else use forecast formula using weights in another column
This bear market is a prime example of
why we should have a strong foundation built & cash position in our investment portfolios.
I always keep emergency cash for expenses and more to take advantage of dips
Many investors try swinging for the fences on high-risk growth stocks or crypto, without building a strong foundation first.
@@raymondalvarez1994 If you can handle the volatility and invest in great growth companies, there is nothing wrong with that.
@@dn.andresmunoz3008 well, most investors just can't handle the volatility
@@raymondalvarez1994
Howard J. Alexander. A U.S regulated investment manager is a good coach. He advised me and I kept emergency funds for buyng the dips.
You should only be taking out what can be taken out during downturns. Do not be tempted to sell.
All that you invested over time especially during upward trends will be lost.
Hello Kenji, After watching your video of DCF Model of Corporate Valuation, I am able to prepare the valuation of any corporations. Thank you very much for your kind contributions for the people all over the world who really want to start their career in Finance.
Kenji, thank you for all your efforts and knowledge that you give to many people. I am sure that you are an example and a motivator for people who want to break into this industry.
By the way, as a further idea. Would you like to make a video about the LBO model? I am sure that many people will be interested.
yeah pls
Would love to see an example paper LBO model or even a more advanced one
Just landed on your channel, just fron this video you already sold me your Valuation Course, keep up with the great content!
Awesome! Thank you!
Hey, Kenji, awesome video as always. Thanks especially for this part 2:03 where you explain how to project the revenue in more detail. I am learning financial analyst and I struggle a little bit with some industries because I find hard to identify the revenue drivers and the revenue items. Keep it up, brother :)
Hi, can someone please explain. I'm very confused as a I feel Kenji may have mixed up the EBIT and the EBITDA around 4:00-5:00. Is it not the EBIT that is equal to Revenue - COGS - Operating Expense not the EBITDA?
My guess is that it is a retail company based on the high level of operating expenses. Great video, thank you; it is helping me to complete an assessment for a position I am interested in
Even telecommunications have high expenses...
Thank you for making such a simple, easy to understand video. It really helps me a lot. Thank you!
Super Video Kenji, Its literally Learn with Kenji now. A lot of takeaways from your videos. Expecting more of these types. Thank you
Best explanation for this tedious subject that I've ever seen!!
thanks Kenji, this is a perfect guide to the valuation project i have at school
For days outstanding. Why use 360 and not 365?
Kenji, thank you for sharing this. Very helpful. Do you have any video that educates about building a financial forecasting model? I am looking to learn how to project - Revenue, Production, Cost of Revenue, and Cash Flow for the next 3 or 5 years.
Dear, Kenji! This is my first time commenting under TH-cam video! Thank you a lot for your explanations! You helped me a lot on my thesis diploma project!
Happy to hear that! thank you for watching the videos :)
Tks for the video. One quick question. In the WACC tab the equity is listed as 214,560 but in the balance sheet tab the equity is listed as 18,078. Can you explain why the big discrepancy ?
Does anyone have an answer on this?
@@fassmo Yeah, confused about this as well.
Better explained than my 3 years in uni😂
Hello Kenji! Around the 14m mark:
I think we SUBTRACT increases in NWC to get from NOPAT to UFCF! Increases to liabilities represent cash INFLOWS rather than outflows, so the formula should be [-(F18-E18)] for cell F17, for example. Otherwise a great video! Thank you for sharing!
I agree
Super Super Super.... Well explained.. Calm, cool, and with patience... make many more videos of DCF with hard way and practical knowledge and also provide excel sheets
Thanks, Kenji it's a great video.
I have a few questions.
How do you calculate the beta in PE?
What's the growth rate of equity based on?
The current value may be based on the 10 year of today but as an investor don't we need to project where the 10 year will be in the future?
How do you adjust for inflation in a case when real yields are negative?
For the expected growth rate do you use nominal growth or real growth?
Why don't you use the revenue growth of this particular company for the growth rate?
What's the expected market return based on?
You are the best!!!
God bless you @kenji. This is a blessing to me personally
Really helpful!! Breaks it down so clearly
Thank you for this, you have made it very bite size, enjoyable.
I literally love you. Thank you for all the hard work.
8:27 Why did you multiply by 360 to get the days outstanding values instead of 365?
Kenji, it was very useful! thank you
I did exactly the same thing. All the values were right but I got the sensitivity table wrong.. I use a MAC, Is there something else that needs to be done to paste it as values?
Thank you Kenji. Very useful.
Your videos are amazing! Easy to follow and organized. Thank you!
Kenji hats off for you brother ❤
great as usual, Kenji. A question. when you calculate the Enterprise free cash flow you seem to exclude interest expense. when you calculate the share price / equity value, you seem to also exclude interest expense. So is interest expense irrelevant to both the firm's free cash flow as well as to equity valuation?
Amazing video.
I think you made a mistake when calculating the CAPM, you didn't subtract the Risk-free rate at the end of the CAPM formula. B(E(RM)-RF). Someone, please correct me if I'm wrong.
Hello Kenji. Nice video but I have a question.
If you pay $100 to your payables, that means the change in net working capital will increase, and thus decrease the cashflow by $100 before discounting in the DCF model. Later on, when calculating equity value from enterprise value, we add less cash in because we paid to the payables. So, it looks like there is double counting of the $100 we paid. Once it deducted the enterprise value in the DCF due to net increase of working capital, and again reduced by $100 when adding (less) cash to arrive at the equity value.
Hi Kenji, where/how did you get the total equity value at 17:21?
Very good video! However I think there is a mistake in the naming. Indeed, your unlevered FCF is actually a levered FCF because you do not deduct debt repayment + otherwise, you would not deduct the net debt when computing the equity value of the company
Thankyou very much for the great content.
At 13:19, would the amount differ in hundreds? Because I followed your step, and drag to the side with proper lock on revenue based on column, but it shows different in hundreds, H6 you got 1326, I got 1523.
me too
This guy has my heart!
hey bro, everything is fine and understandable but in Net working Capital you took three indicator for current assets, but in the data there were actually 5 if I am not mistaken. My question is why did you take those three?
Great Video, thanks for sharing!
If the tax rate is different each year, when calculating the WACC, which tax rate does it take? Can there be multiple WACCs based on the year?
very good but u need to make a full video in more detail please! this just scratches the surface
been waiting for this one thank you sir
I wish you could explain what you mean by "model out each line item" in making revenue growth projections at 2:00. I hope you can provide as some sources how to do about it. Thanks.
Thank you so much for your kind explanation and excel files!!! It'd be a greatttt help! I have a question though. Reg. Fixed Asset tab, I usually look for Capex amount from the cash flow chart.. but in your case, you did Ending PP&E - Beg PP&E + D&A. In this case, it doesn't match with the Capex amount from the cash flow. Am I doing something wrong?
how do u justify calculating the percentage against revenue for the components under current assets and liabilities?
so awesome，so useful！thank you so much!
Thank you for this great video.
I was just wondering how did you get the growth figures? On what did you base all of these assumptions?
Is it okay to take company's projected growth rate from the guidance for revenue projection? And I am really confused about the growth rate Kenji used while calculating the terminal value.
Hi, where are you getting the equity value from in the WACC tab ? I.e. 234,550
This should be the value of equity from the Balance sheet, isn't it ?
That is most likely the market cap of the company on the day he put this together(2022-07-02). When calculating WACC, the market value of equity is typically used in the formula.
Hey Kenji! great videos..
I want to ask you what laptop would you suggest to perform all these task
for a ms in finance student which laptop would be the best?
thank you 🤝
It's really a great effort, thank you very much, I benefited a lot from you
Thank you again and wish you all the best
Glad to hear that!
I needed this type of video! Thanks man!
Glad you liked it!
Thank you Kenji.
Thank you so much, could you make a video on the Cap table?
Thanks Kenji a lot
How are the projected growth rates per year often set?
Hey Kenji, when I am making sensitivity table, for some unknown reason my middle figure is not as the calculated implied price. Can you help?
What formula have you used to calculate the growth rate? Forecast or RRI (CAGR) on excel? theyre different than the ones hardcoded in the excel. i tried averaging both the methods but still a few % dont match. Please mention!
Damn dude this was awesome
Can you explain how did you the discount rate for forecasting the revenues for the FCF
what if there are discrepancies such as in NWC calculations as its in a very fluctuating way what can be done for assumptions
Kenji always on point
for the debt, did you take an average from all the years?
Hi sir, I have one doubt that when I do capex assumption for fade period through solver it shows me error why ???
The company is costco wholesale corporation
the statements match and the stock was around 360$ when the video was published. I have a university project on costco thats how i noticed
He took 3% growth rate for the industry but retail was projected to grow at 9%. Can you please put some colour on this?
Very informative video! 🧐
is there like normal range for WACC percentage?
Please make a video on Precedent Transaction Analysis for Valuation
Hi Kenji, to answer your question, my guess is some type of online subscription company. Given the huge amount of cashflow, is it Netflix?
Thankx Kenji sir
You will end up a million subscribers
Hello. Can you put here the excel file for DCF starting from EBIT please ? Thanks.
Salute to you Kenji!
When you calculated Days Sales Outstanding, Days Inventory Outstanding and Days Payable Outstanding, technically you were supposed to use the average of the pervious year and the current year's balance sheet figure.
Great content MR!
Hi Kenji, thank you very much for the video. It is very informative and useful. Just one quick question:
At 06:40, you mentioned the equation for non-cash working capital formula is: current assets - cash - current liabilities, but then at 13:50, the formula for calculating NWC (or change in NWC) does not include the item "cash". Can you please explain why? Thank you very much!
Cash is already included in the current assets figure
I'm so confused why every source has a different formula for NWC, like some include cash and operating lease liabilities
Hi Kenji, good explanation but why the EBITDA and EBIT the answers is different when using calculate using the formula?
Hi Kenji, why doesn't the formula for calculating CapEx match the CapEx on Cash flow statement on fixed assets sheet? Why did you calculate your CapEx instead of using the CapEx number from Cash flow statement? thanks!
how did you calculate the equity value?
Hi Kenji, how I can find Debt on WACC in the Bloomberg platform. Its information seems to be hide on the Bloomberg platform :(((
Really great video. But link for excel file not working, can u pls reupload it somewhere?
Hi Kenji, thanks for the video!
I have a questions, from where do you got the Revenue Growth 10% on 2022E and then for the other ones? Thank you!
hii but why my excel what-if can't select the row and colomn input cell?
Hello can please explain how did you get 10% revenue growth in 2022E and so on
Awesome video! How do you automatically get data for a new company into the same excel sheet? Or do you have to do it manually? Thanks
For publicly traded companies, accessing financial statements through the investor section of their website is common practice. These statements typically include earnings summaries, financial reports, and presentations, often available for download in formats like Excel or CSV.
However, when it comes to private companies, they are not required to disclose their financial information publicly. So, getting access to their financial data can be challenging unless they voluntarily release it or share it through other means.
For risk measures like Beta, various financial platforms and sources such as FINRA, Yahoo Finance, Bloomberg, or other financial data providers often offer these metrics for different industries and companies, both public and private.
This was mad helpful. Thank you so much!
Glad it was helpful!
Hi, I think there was an error in 2:34 - the tax projection was 21% which I assume is based of the average of the actual tax% of EBIT per your approach to the COGS and SG&A projections. However, 21% is not the correct average but 23.4% is the correct average. Please let me know if I have misunderstood something!
Why would you use the average tax rate? Just look up the current tax rate?
Can we not use purchases of property and equipment in the cash flow as the CapEx values? Is it common practice to make an extra calculation for CapEx?
That’s what he did in the video. “Capex” was the same as “purchase of PP&E”. The calculations he made were to find Ending PP&E
Kenji, can you pls answer, in the case that a company has already mentioned its CapEx (in its Statement of Cash Flows), should we still calculate CapEx using Beginning PP&E? If not, should we use CapEx%/Revenue to build the assumption? The same question goes for D&A, which D&A should I use? D&A of PP&E or D&A in Income Statement? Thanks a lot !
Thanks for such a informative video.
Can you mention name of company whose valuation you do here
Can u make a video about Lbo model pls
Hey @Kenji why have we not included operating income and preopening expenses while calculating FCFs?
What Company is this? I am thinking it is a Declining Retail Company. Also why did you not add Cash and Cash equivalents in the current assets and term debt in the current liabilities? Where did you find the beginning PP&E? Also for the debt in the WACC tab, for long term debt, do you include long term lease liabilities or just long term debt? For the Expected Market Return number for the WACC, how did you get that 7.8% number?
Hey unrelated to the video, but around how much do base level analysts at Goldman Sachs make?