DCF VALUATION MODELING Introduction Table of Contents Course Agenda 04 09 26 39 Introduction to the Course DCF - the Big Picture Enterprise Value & Equity Value Practice DCF Intro 49 63 72 88 DCF Fundamentals WACC Overview Deriving Share Price from the NPV of FCF Nike DCF Modeling 2 INTRODUCTION TO THE COURSE Lesson 1.1 Introduction to the Course DCF Valuation Modeling Course Objectives • Course focuses on teaching the core concepts used to perform a DCF-based valuation in the context of corporate finance transactions • One of several methods that may used by finance professionals to inform valuation for public and private companies in the context of corporate finance transactions DCF Valuation Impacts: M&A Transactions LBOs IPOs Restructurings Other Investment Decisions Mergers, acquisitions, divestitures, or other strategic transactions conducted by management or financial sponsors An acquisition of a company that is funded with debt (aka. “leverage”) backed by the company’s assets A method through which a privately-held company raises new capital through an issuance of shares to public equity investors A reorganization of a company’s capital structure, often executed through a bankruptcy process Other strategic decisions a company may make to either achieve growth / profitability goals An understanding of discounted cash flows is critical for careers in investment banking, private equity, venture capital, corporate development, and other finance related roles 4 Lesson 1.1 Introduction to the Course About Your Instructors Tim Schlidt • J.P. Morgan: Healthcare Coverage • Greenhill: M&A and Restructuring Generalist • Madison Dearborn Partners: Private Equity Associate Josh Pupkin • Barclays: Restructuring Investment Banking • Neuberger Berman: Private Equity & Biz Dev Associate • Akerna (Nasdaq: KERN): VP, Corporate Finance • MBA: Duke University’s Fuqua School of Business Levi Mallik • Morgan Stanley: Transportation and Infrastructure Coverage • Hellman & Friedman: Private Equity Associate • PPD: Executive Director of Business Development 5 Lesson 1.2 Introduction to the Course What You Will Learn From the Course This course focuses on one(1) of the fundamental valuation methodologies used in corporate finance and investment banking, known as the Discounted Cash Flow (“DCF”) method Discounted Cash Flow Valuation Definition: • Values companies by forecasting future cash flows and discounting them back to today's present value using a rate based on the risk of the cash flows being realized • Focuses on the cash flows generated by core operating assets after payment of cash operating expenses and funding of CapEx and working capital • Intrinsic Value and underlying drivers of cash flow, WACC and Terminal Value Key Themes: • Most technically rigorous of the core valuation methodologies • Advantages and disadvantages compared to multiples-based Relative Valuation Case Study Focus We will review key concepts and introductory exercises and then go through a step by step approach to calculating a DCF-based valuation in a case study format 1. In addition to the DCF, the other most commonly used valuation methodologies are known as the Comparable Companies Analysis (or “Trading Comps”) and Precedent Transactions Analysis (“Transaction Comps”). These additional methodologies are covered separately as part of their own dedicated Valuation course offering from Wall Street Oasis. 6 Lesson 1.2 Introduction to the Course Additional Resources Foundational Courses Career Prep Courses Wall Street Oasis offers a large selection of courses, some which are great foundations to supplement this DCF modeling course, and others that can prep you for your job search 7 DCF – THE BIG PICTURE DCF – The Big Picture Lesson 2.1 Valuation Roadmap Valuation will be fundamental to nearly every type of corporate finance-related project or strategic transaction you may work on In addition to DCF valuation and relative valuation methodologies (i.e. trading and transaction comps), you may use other valuation methods • Leveraged Buyout valuation • Sum of the Parts valuation (or “Breakup” valuation) • Gordon Growth • Other industry-specific methodologies Using a number of different methodologies will often lead to a broad valuation range A critical part of the junior finance professional’s role is to understand the different approaches and why you get different answers There is no one right way to value a company, and there are various ways to define value! Valuation is an art, not an exact science 9 DCF – The Big Picture Lesson 2.1 Conceptual Framework for Company Value Enterprise and Equity Value are based on the idea that value from a company is derived from the present value of its projected future cash flows (aka. “Intrinsic Value”) How do you measure “Company Value”? The two main ways to measure “Company Value” are Equity Value and Enterprise Value. This is difficult in practice because companies are worth different amounts to investors! • Does it refer to what the market believes a company is worth? Or does it refer to our opinion of what the company is worth? • Does value include all the company’s assets or just those related to its core business? • Does value refer to certain investors, or all investors? Company Value = Cash Flow / (Discount Rate – Cash Flow Growth Rate) 10 DCF – The Big Picture Lesson 2.2 Intrinsic vs. Relative Valuation The 2 common ways to value a business are Intrinsic (DCF) or Relative Value (Comps). The primary focus of this course is Intrinsic Valuation Valuation Form Intrinsic Definition/Application Benefits Considerations • Valuation based on a company’s potential future free cash flow generation • Directly linked to traditional academic theory • Subject to assumptions used to project future FCF • Useful if there are limited comparable companies or precedent M&A deals • FCF projections may differ from those implied by current public markets • Provides a benchmark to determine market value • Can be distorted by several items (market volatility) • Reflects the current public market valuation and overall sentiments • Not based on fundamental FCF generation • Discounted Cash Flows • Valuation based on how a company compares relative to its peers Relative • Trading Comps or Precedent Transactions • Depending on industry, universe of comparable comps may be limited 11 DCF – The Big Picture Lesson 2.2 Simple Example of Valuation Thought Process Valuation and Asset Example 1 Market Value When selling an asset, both the buyer and seller care about the market value. While the original cost (book value) is a consideration to the seller, current market value will drive the decision to sell 2 Enterprise Value When considering buying an asset, the buyer cares about the total value of the core asset (including any part of that value which may be funded by a loan or mortgage) 3 Equity Value While a home or car-owner’s ability to build Equity Value in the asset over time is important, the total value of the asset is of greater importance 4 Relative Valuation When considering the purchase or sale of an asset, buyers and sellers frequently rely upon sales comparable homes or cars as the basis for valuation 5 Intrinsic Valuation Approach: Rather than selling your house or car, what is the present value of potential future income from renting or leasing it out? All these concepts are related, but an investor will focus on some more than others depending on his / her perspective 12 DCF – The Big Picture Lesson 2.3 Introduction to Discounted Cash Flows Definition The DCF analysis values a company based on the present value (“NPV”) of the sum of its projected future free cash flows Deep Dive How its Calculated • Sum of future free cash flows for ~5 years and Terminal Value (“TV”) • Discount each annual cash flow at least one year in the future at a rate (or “cost of capital”) reflecting the risk profile of the business • Projection period should be long enough for company to achieve a “steady state(1)” What It’s Not Additional Details • Free cash flows can be derived based on one’s assumptions for a company’s growth, margins profile, CapEx, and working capital requirements • Intrinsic Value does not reflect the current Market Value of a company • Not sensitive to periods of market volatility • TV reflects company value beyond the projection period (i.e. in perpetuity) • Increases in cash flows or the TV increase valuation, but increases in WACC decrease valuation 1 2 πͺπ πͺπ πππ = πͺπ0 + + + β―, 2 1 + πΎπ¨πͺπͺ 1 + πΎπ¨πͺπͺ 1. 5 years is usually long enough to capture the length of either one business cycle or for any realizations of current strategic initiatives. However, a longer projection period can be used when companies maintain long-term contracts with highly creditworthy customers OR early stage / emerging companies to allow for time to reach normalized cash flow generation. 13 DCF – The Big Picture Lesson 2.3 Example: Simple DCF Valuation Calculation Given Info: • You are considering selling your home and received a $1 million cash offer with no closing risks • Alternatively, that same potential buyer offers to rent the home from you (rather than purchase it from you) for $150,000 per year for 10 years. You can assume would not be obligated to fund any repairs or ongoing maintenance costs • Your discount rate is 3% per year • Dec. 2019 if closing on sale; or first year’s rent payment occurs in Dec. 2020 • Which proposal offers a higher value in today’s dollars? Solution: Income Stream: $150K / (1.03) = $146K $150K / (1.03)2 = $141K $150K / (1.03)3 = $137K .......................... $150K / (1.03)10 = $112K NPV = ~$1.28mm 14 DCF – The Big Picture Lesson 2.3 Example: Simple DCF Valuation in Perpetuity Given Info: • A university alumni wants to endow a professorship to fund emerging virus vaccine research • However, the alumni does not know how to determine the appropriate donation to fund it. The alumni can reliably assume the following: 1. Donation must fund professor salary, agreed upon at $150K/year with 5% annual increase 2. 10% discount rate Solution: Value of Donation = Cash Flow to Fund Professor / (Discount Rate – Cash Flow Growth Rate) Value of Donation = $150K / (.10 – .05) Value of Donation = $150K / (.05) Value of Donation = $3mm 15 DCF – The Big Picture Lesson 2.3 Use of DCF in Practice While the DCF is a highly analytical tool for determining a company’s Intrinsic Value, in practice it may be less relevant than the company’s Relative Valuation (implied by comps) • DCF provides a view of a company's future cash flows and discounts those cash flows at some WACC to derive the present value (its Intrinsic Value) • Relative Valuation uses comparable company valuation multiples (i.e. multiples of Revenue, EBITDA, etc.) to derive a company's Market Value • Using the DCF analysis in practice comes with a few challenges: • - Sensitivity to key assumptions, including future financial performance, Cost of Capital, Terminal Value, etc. Multiples allow us to compare comps of different sizes, capital structures, and other characteristics • In theory, Market Value and Intrinsic Value should equal one another in a perfect market - Performing a comprehensive, thoughtful analysis may require detailed company information • Garbage data or assumptions will result in a meaningless DCF-implied valuation 16 DCF – The Big Picture Lesson 2.4 Introduction to Equity Value Definition Equity Value represents the value of a company's common shares, either in aggregate or on a per share basis Deep Dive How its Calculated • Price per share x common shares outstanding • Shares calculated on a “fully diluted” basis (in-the-money options, warrants, converts, etc. convert to common) Also Known As… • Often referred to as “Market Cap” • Can be thought of as the market value of the shareholders’ total invested capital What It’s Not • Does NOT represent the value of the Firm and its core operations, which also includes the value of other investor capital (i.e. from debt investors, etc.) • Net of outstanding debt or other obligations Equity Value (aka. “Market Cap”) = Price per Share * Fully Diluted Shares Outstanding(1) 1. Fully Diluted Shares Outstanding = Basic Shares Outstanding + Shares from In-the-Money Stock Options & Warrants + Shares from other In-the-Money Convertible or Dilutive Securities (i.e. Restricted Stock, etc.) 17 DCF – The Big Picture Lesson 2.4 Example: Simple Equity Value Calculation Can you guess which company has the largest market cap as of April 15th, 2020? Price Per Share Shares Outstanding $177.04 7.65 Billion Market Cap $1.354 Trillion !! Where to Source • 3rd party market data services provider (i.e. Bloomberg, FactSet) • Basic shares outstanding: page 1 of most recent quarterly/annual 10K/Q filing • Securities that may dilute basic shares outstanding (for example, options, etc.) will be detailed in the footnotes to the financial statements • Also available via 3rd party market data services providers 18 DCF – The Big Picture Lesson 2.5 Introduction to Enterprise Value Definition Deep Dive Enterprise Value reflects the value of a company’s core assets funded by (and attributable to) both the company's debt and equity investors How its Calculated Also Known As… What It’s Not Value of all ownership interests and claims on core business assets (from both debt and equity investors) Can be thought of as the value of the company’s operational assets, in addition to its future growth opportunities EXCLUDES non-core assets, for example, excess cash (or cash not required for operational needs) Enterprise Value (“EV”) = Equity Value + Total Debt + Value of Preferred Stock(1)+ Value of Non-Controlling Interests(1) - Excess Cash and Non-core Assets(1) 1. If applicable; most companies have some combination of debt and common equity funding, but not necessarily. Preferred stock and non-controlling interests are less frequently seen in public company capital structures, but they are still prevalent. 19 DCF – The Big Picture Lesson 2.5 Example: Moving from Equity Value to Enterprise Value To move from a company’s Equity Value to its Enterprise Value, subtract non-core assets and add Debt & Equity items that represent other investor groups • Equity Value = value of core business assets + value of non-core business assets • Enterprise Value = value of core business assets (usually all those except cash/short-term investments) • Equity Value = value to common equity investors (net of debt obligations) • Enterprise Value = value to equity investors + value to debt investors + value to preferred stock/other investors Equity Value Enterprise Value Metric Amount Price per Share $10 (*) Assumed FDSO (Fully Diluted Shares Outstanding) 10 million Equity Value $100 million Metric Amount Equity Value $100 million (+) Assumed Total Debt $50 million (+) Assumed Pref. Stock -- (+) Assumed NCI -- (-) Excess Cash $2 million (=) Enterprise Value $148 million 20 DCF – The Big Picture Lesson 2.6 Example: Nike’s Market-Implied Enterprise Value Metric Amount Source Price per Share $86.79 (*) Assumed FDSO 1.6 billion • 10Q for 3rd Quarter of fiscal 2020 – notes to the financial statements Equity Value $138 billion -- (+) Assumed Total Debt $3.5 billion • 10Q for 3rd Quarter of fiscal 2020 – notes to the financial statements (+) Assumed Pref. Stock -- • 10Q for 3rd Quarter of fiscal 2020 – Balance Sheet (+) Assumed NCI -- • 10Q for 3rd Quarter of fiscal 2020 – Balance Sheet (-) Excess Cash $3.2 billion • 10Q for 3rd Quarter of fiscal 2020 – Balance Sheet (=) Enterprise Value $139 billion -- • Bloomberg We will refer to Nike’s filings and a current snapshot of their share price from Bloomberg to calculate their Enterprise Value 21 DCF – The Big Picture Lesson 2.7 Nike’s Balance Sheet Implications on Enterprise Value (I/II) ~$23 billion of assets are used for core business activity, net of assumed “excess cash” With a > $130 billion market cap, we can see the market is valuing Nike’s operational assets much more highly than US GAAP accounting does 22 DCF – The Big Picture Lesson 2.7 Nike’s Balance Sheet Implications on Enterprise Value (II/II) Funding Source With funding sources of ~$3.5 billion of debt and ~$9 billion of equity, Nike has able to generate $23 billion of core assets on its Balance Sheet, some of which will be used to pay its operational liabilities of ~$13.7 billion Funding Source While Book Value on the Balance Sheet can be a reference point when deriving valuation, it frequently does not drive the company's market value 23 DCF – The Big Picture Lesson 2.8 Module Summary, Reflections, and Calculations Key Definitions • DCF analyses derive the value of a company from the present value of its future free cash flows • Enterprise Value: The value of the company’s assets related to its core business operations, but to all investors (including Equity, Debt, Preferred, and potentially non-controlling Interests) • Equity Value: The value of all company assets, but only to equity investors (i.e., common shareholders) Key Formulas 1 πͺπ1 πͺπ2 πππ = πͺπ + + + β―, 1 + πΎπ¨πͺπͺ 1 + πΎπ¨πͺπͺ 2 0 2 Equity Value (aka. “Market Cap”) = Price per Share * Fully Diluted Shares Outstanding(1) 3 Enterprise Value (“EV”) = Equity Value + Total Debt + Value of Preferred Stock(2) + Value of Non-Controlling Interests(2) Excess Cash and Non-core Assets(2) 1. 2. Reflections οΌ EV and Equity Value concepts are based on the premise that value from a company is calculated from the present value of future cash flows οΌ Market Value is likely to be different than what is reflected as Book Value on a Balance Sheet (GAAP) οΌ Why might the (relative) Market Value be different from the Intrinsic Value? Differences in assumptions, e.g. discount rate, projected cash flow, etc. οΌ To move from Equity Value to Enterprise Value, we subtract noncore assets and add Debt & Equity items (Debt, Preferred Stock, and Noncontrolling Interests) representing other investor groups Fully Diluted Shares Outstanding = Basic Shares Outstanding + Shares from In-the-Money Stock Options & Warrants + Shares from other In-the-Money Convertible or Dilutive Securities (i.e. Restricted Stock, etc.) If applicable; most companies have some debt and common equity funding, but not necessarily. Preferred stock and non-controlling interests are less frequently seen in public company capital structures, but they are still prevalent. 24 DCF INTRO Lesson 4.1 DCF Intro Conceptual DCF Process Overview Calculate NPV and determine valuation Determine the Terminal Value Calculate the Weighted Average Cost of Capital Project FCF based on key performance drivers over the last ~3 years • Rate used discount future FCF to its value today (Present Value, or PV) • Focus on historical and projected drivers of Unlevered Free Cash • Dependent on capital structure Flow (UFCF) – growth, profit, CapEx, working capital needs, etc. • Consider variability of key inputs and assumptions with sensitivity analyses • Projecting FCF more than a few years (or in perpetuity) is hard, so we calculate a TV to reflect value in a steady state from beyond projection • TV may comprise a large portion of DCF valuation • Perpetuity Growth or Exit Multiple? The DCF analysis is only as strong as its supporting assumptions! If any key assumptions driving cash flow generation, WACC or TV are incorrect, it can significantly impact the DCF-based valuation 26 DCF Intro Lesson 4.1 Core Competencies for Building a DCF Valuation Model You’ll need to intuitively understand how to perform each of the key themes below to have a truly meaningful and informative DCF-based valuation 1. While a DCF valuation based on a fully-integrated 3 statement financial model is recommended, one can perform a “quick and dirty” abbreviated cash flow analysis based on certain high level assumptions to derive valuation. However, these assumptions are frequently more refined and robust when considered based on a full 3 statement model approach. 27 Lesson 4.2 DCF Intro P&L Terminology Used in DCF Valuation Definition Metric Revenue Sales recognized by a company for the use of its products and / or services Less: COGS Costs of Good Sold: Reflects the cost of production of goods or delivery of services; Driven by direct costs per unit and direct labor Gross Profit Profit earned by a company after the impact of COGS but before operational overhead; indicative of efficiency and pricing power across the supply chain Less: OpEx Operational Expenses unrelated to the cost of production of goods or delivery of services; still core business activities, but more like overhead EBIT(1) Earnings Before Interest and Taxes; often equal to reported Operating Income reflects profit of core operations, independent of capital structure and taxes Plus: D&A Depreciation & Amortization is a non-cash operating expense that reflects decreasing value in a fixed asset (PP&E); added back to EBIT to derive EBITDA EBITDA(2) Earnings Before Interest, Taxes, Depreciation & Amortization; critical measure of profit and cash flow from operations; independent of capital structure and taxes 1. 2. EBIT may differ from Operating Income due to the inclusion of income generated outside the scope of a company’s ordinary course business operations (aka. “Other Income”). EBITDA is technically a non-GAAP metric that is not required to be disclosed. 28 Lesson 4.3 DCF Intro How They are Applied in DCF Valuation Metric In DCF Valuation Key Concept: Sales projection must be consistent with other related assumptions in DCF (CapEx, Working Capital, etc.) Revenue Larger volumes of revenue merit premium valuation – economies of scale, enhanced purchasing power, pricing leverage, customer diversification/defensiveness. Ensure business cyclicality is reflected! COGS(1)(2) Usually variable with sales volumes; may incl. D&A (check footnotes). If COGS is driven on a unit volume/cost basis, we advise projecting COGS based on expected volumes sold and cost per unit Also expressed as “Gross Margin” (% of Revenue); can improve through enhanced pricing power and manufacturing/service efficiency; in the absence of unit economics, project based on margin levels using historical data, trends and potential outlook as a guidepost Gross Profit OpEx(1)(2) Overhead from Sales & Marketing (“S&M”), Research & Development (“R&D”) or General & Administrative (“G&A); without guidance/research, project based on margin levels using historical data, trends and outlook EBIT Used less than EBITDA as a P&L-based proxy for cash flow from operations (as it includes D&A/non-cash expenses); however, when calculating UFCF we “tax-affect” EBIT at MTR to estimate illustrative taxes D&A Non-cash expense reflecting reduced book value of a fixed asset (i.e. PP&E, Intangible Assets) over its useful life; “added back” when calculating FCF as the expense reduces earnings but not FCF. Can project depreciation based on % of Revenue or CapEx, or a detailed schedule linked to CapEx and PP&E EBITDA Operating Profit metric (without the impact of non-cash D&A) that serves as a proxy for operating cash flow; free from capital structure differences and the impact of other non-recurring items 1. 2. In the absence of guidance, equity research, consensus estimates, trends or sector outlook for the outer years of a projection, we tend to keep Gross Margin and OpEx (as % of revenue) constant with the levels of the initial years If revenue growth results in an even greater increase in gross/operating margins, the company is known to have “operating leverage”. This dynamic is the result of a company’s cost structure (and mix of fixed costs vs. variable costs) 29 Lesson 4.4 DCF Intro Other Financial Statement Terminology for DCF Valuation Metric In DCF Valuation Tax-affected EBIT Residual profit after all operating expenses (cleaned for non-recurring items) AND estimated taxes using the marginal tax rate; beginning step in UFCF calculation Marginal Tax Rate (MTR) Tax rate applied to incremental increases to taxable income (i.e. 21%) and the rate applied to EBIT in UFCF calculation; differs from a firm’s Effective Tax Rate (can serve as reference point) Costs to purchase, expand, or maintain/replace tangible fixed assets (i.e. PP&E); cash expenditure/outflow on Cash Flow Statement, NOT an expense on the P&L. Often projected based on % of Revenue, or based on a detailed schedule linked to PP&E and Depreciation CapEx(1) Non-cash current assets (i.e. A/R, Inventory, Prepaids, etc.) less non-interest bearing current Net Working liabilities (A/P, Accrued Liabilities, Deferred Revenue, etc.) found on the B/S; represents ongoing cash Capital (NWC) (2) needs to fund the business ops. Periodic change in NWC balance is a cash impact included in UFCF Unlevered Free Cash generated by core operations after paying cash OpEx, taxes, CapEx and working capital needs; does NOT include interest expense. Common cash flow metric to discount to PV in DCF Cash Flow Cash from Operations Cash generated by all business operations (incl. non-core) after paying all cash expenses, taxes, and INTEREST EXPENSE. Starting point in Levered Free Cash Flow calc. – more on that soon! Debt Service Refers to the satisfactory completion of obligations related to outstanding debt financing (i.e. interest expense and principal payments) 1. 2. CapEx is capitalized on a company’s Balance Sheet and expensed over its estimated useful life (as Depreciation on I/S). Increases in NWC over a specific period of time represents a USE of cash (cash outflow that decreases UFCF), whereas decreases in NWC represent a SOURCE of cash (cash inflow that increases UFCF). More details on this soon! 30 Lesson 4.5 DCF Intro Introduction to Preparing LTM Financial Metrics Main Concept Last Twelve Months Financial Data (aka “LTM”) – method to evaluate a company’s performance during the immediately preceding 12-months Application Misconception Frequently used timeframe for evaluating performance with both trading comps and other methods Not necessarily related to a fiscal year period! Note the Q3’18 and Q3’17 periods represent 9 month YTD periods, not just the third quarter How to Do It In order to determine LTM figures, use the company’s most recent 10-K and 10-Q In Practice How to calculate LTM EPS when 9 months through the fiscal year: EPS Formula Q3-2017 $0.50 A FY 2017 $1.00 B Q3-2018 $0.75 C LTM $1.25 =B+C-A ο It is currently July 1st, 2019, company reports revenue of $10mm through the first 6 months of 2019 (June 30th); $7mm of revenue through the first 6 months of 2018 ο Annual revenue of 15mm for 2018 ο LTM Revenue ending 6/30/2019, take $10mm + $15mm – $7mm = $18mm LTM Calculation = most recent annual figures + most recent quarter’s YTD figures – YTD figures in the corresponding quarter ending 12 months before the most recent quarter 31 Lesson 4.6 DCF Intro Locating Relevant Information to Project Free Cash Flow Sources of information to project free cash flow can vary in terms of the amount of detail they provide and the amount of creativity they require on behalf of the finance professional Guidance from Management • Ideal source for any company projection, especially for privatelyheld businesses • However, in practice you will not always have access to management guidance or projections Equity Research & Consensus Estimates • Consensus estimates for Revenue, EBITDA, EBIT, etc. often form the basis of public company projections • Equity research reports may provide 2-3 years of high level projections (or even sometimes a full 3 statement model) Other Sources With no management guidance or equity research reports, use publicly available historical financial data, current sector trend info., and consensus estimates for public comps 32 Lesson 4.6 DCF Intro Sample FCF Projection Drivers for a DCF Analysis A thoughtful DCF analysis will include assumptions for a company’s underlying key performance indicators that drive growth, margins, and free cash flow Sample Assumptions for Key Performance Indicators: Organic • Winning new customer contracts (market share gains) or increases in unit pricing Inorganic • Acquisitions • Growth in stores/locations, facilities, or capacity – dependent on brand, maturity and mgmt. focus • Developing new or expanding existing products based on end-market trends • Operational efficiencies (optimizing product mix, marketing strategy, customer base, scale and technology) to drive margin expansion • Working capital efficiencies to drive cash flow generation (or to offset CapEx for expansion) Macroeconomic factors, consumer buying patterns, and legislative/regulatory changes may also be important to understanding the company’s “story” 33 Lesson 4.7 DCF Intro DCF Valuation Benefits & Considerations Benefits Considerations The DCF-based valuation has many benefits and limitations. As a result, we often cross reference a DCF-based valuation with other methodologies (comps, etc.) as a sanity check 34
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