Discounted Cash Flow (DCF) Method with Multiple
The DCF with Multiple method discounts projected future cash flows to present value. The terminal value is calculated using an industry EBITDA exit multiple. This market-based approach provides valuation based on financial projections.
Discounted Cash Flow (DCF) Method with Multiple
Projecting Future Cash Flows
- We forecast the company’s financials over a 5 year period to estimate future free cash flows.
- Projections cover key items like revenue growth, operating costs, capital expenditures, depreciation and amortization, working capital changes.
- Projections are based on historical financials, company forecasts, and industry benchmarks.
Discounting Cash Flows
- Future cash flows are discounted to present value using the discount rate.
- Discount rate accounts for time value of money and investment risk.
- We calculate discount rate using CAPM based on risk-free rate, beta, market risk premium.
- Inputs customized based on company country, industry, stage, profitability.
Calculating Terminal Value
- Terminal value represents company value at the end of projections.
- It is calculated as last year’s projected EBITDA multiplied by an industry EBITDA exit multiple.
- We source industry-specific EBITDA multiples annually from Prof. Aswath Damodaran’s database.
Determining Total Valuation
Total valuation = Sum of discounted cash flows + Discounted terminal value
Provides valuation based on financial forecasts and industry multiples
Commonly used for more mature companies
