A Tutorial on the Discounted Cash Flow Model for Valuation of Companies

Peter Jennergren

No 1, SSE/EFI Working Paper Series in Business Administration from Stockholm School of Economics

Abstract: All steps of the discounted cash flow model are outlined. Essential steps are: calculation of free cash flow, forecasting of future accounting data (income statements and balance sheets), and discounting of free cash flow. There is particular emphasis on forecasting those balance sheet items which relate to Property, Plant, and Equipment. There is an exemplifying valuation included (of a company called McKay), as an illustration. A number of other valuation models (abnormal earnings, adjusted present value, economic value added, and discounted dividends) are also discussed. Earlier versions of this working paper were entitled "A Tutorial on the McKinsey Model for Valuation of Companies".

Keywords: Valuation; free cash flow; discounting; accounting data (search for similar items in EconPapers)
Pages: 55 pages
Date: 1998-06-18, Revised 2011-12-13
New Economics Papers: this item is included in nep-cfn and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://swoba.hhs.se/hastba/papers/hastba0001.mck.xls First worked example (application/vnd.ms-excel)
http://swoba.hhs.se/hastba/papers/hastba0001.mck_ext.xls Second worked example (application/vnd.ms-excel)
http://swoba.hhs.se/hastba/papers/hastba0001.pdf (application/pdf)

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