cporeo.blogg.se - Implied perpetuity growth rate of cashflows

The cost of capital for a LBO is mechanical. Some would argue the LBO is not a valuation methodology, but I’d argue that a LBO performed by a banker is a DCF without the uncertainty of the WACC. The most substantial decision is the first question: which companies or deals are comparable? In public trading comparables and acquisition comparables, there are fewer distinct areas of judgment.

Investment bankers are not in the business of creating projections, and the client should have a stronger basis to project their own performance.Ĭompare these unknowns to those of other valuation methodologies: The financial projections are usually supplied by the client, or are created with the client’s input and are subsequently blessed by the client. The WACC and the Exit Multiple / Terminal Growth Rate are the big unknowns, where investment bankers must exercise judgment.

WACC (with its own numerous levers and inputs).

When we compare it to other valuation methodologies, it has the most unknown variables. The DCF is the most subjective form of valuation - it is subject to the most judgment and potential for manipulation. This article will walk you through a high-quality DCF template and some of the key considerations. This article assumes you have already made at least a couple DCFs and understand the core concepts.

If you have to ask what a DCF is, or how it works, this article is not for you. This article will not serve as an introduction to DCFs and will not cover the WACC calculation.