DCF Analysis: Conclusion
  1. DCF Analysis: Introduction
  2. DCF Analysis: The Forecast Period & Forecasting Revenue Growth
  3. DCF Analysis: Forecasting Free Cash Flows
  4. DCF Analysis: Calculating The Discount Rate
  5. DCF Analysis: Coming Up With A Fair Value
  6. DCF Analysis: Pros & Cons Of DCF
  7. DCF Analysis: Conclusion

DCF Analysis: Conclusion


By Ben McClure
Contact Ben


As you have seen, DCF analysis tries to work out the value of a company today, based on projections of how much money it will generate in the future. The basic idea is that the value of any company is the sum of the cash flows that it produces in the future, discounted to the present at an appropriate rate.

In this tutorial, we have shown you the basic technique used to generate fair values for the stocks that you follow. But keep in mind that this is just one approach to doing DCF analysis; every analyst has his or her own theories on how it should be done.

Although manually working your way through all the numbers in DCF analysis can be a time-consuming and tricky process at times, it's not impossible. Yes, using a DCF model probably entails a lot more work than relying on traditional valuation measures such as the P/E ratio, but we hope this step-by-step guide has shown you that it is worth the effort.

DCF analysis treats a company as a business rather than just a ticker symbol and a stock price, and it requires you to think through all the factors that will affect the company's performance. What DCF analysis really gives you is an appreciation for what drives stock values.

Here are some external resources that you may want to check out:

Damodaran Online - Aswarth Damodaran, professor of finance at New York University's Stern School of Business, has created an excellent website devoted to valuation techniques. He offers numerous DCF models set up in Excel spreadsheets, and he gives details on the intricacies of the models.

Valuing Intel: A Strange Tale Of Analysts And Announcements - Bradford Cornell, professor at UCLA's Anderson Graduate School of Management, has produced an excellent DCF analysis that assesses market and stock analysts' reactions to an Intel Corp. earnings announcement.


  1. DCF Analysis: Introduction
  2. DCF Analysis: The Forecast Period & Forecasting Revenue Growth
  3. DCF Analysis: Forecasting Free Cash Flows
  4. DCF Analysis: Calculating The Discount Rate
  5. DCF Analysis: Coming Up With A Fair Value
  6. DCF Analysis: Pros & Cons Of DCF
  7. DCF Analysis: Conclusion


RELATED TERMS
  1. Short-Term Debt

    An account shown in the current liabilities portion of a company's ...
  2. Audit

    An unbiased examination and evaluation of the financial statements ...
  3. IRR Rule

    A measure for evaluating whether to proceed with a project or ...
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  5. Discounted Payback Period

    A capital budgeting procedure used to determine the profitability ...
  6. Selling, General & Administrative Expense - SG&A

    Reported on the income statement, it is the sum of all direct ...
RELATED FAQS
  1. How is perpetuity used in determining the intrinsic value of a stock?

    Investors are often interested in determining intrinsic values of the stocks, bonds or other securities as they consider ... Read Full Answer >>
  2. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  3. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  4. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  5. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  6. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
Hot Definitions
  1. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  2. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  6. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
Trading Center