Stellar job! I've watched a lot of dcf tutorials, and this one is bar far the most insightful which is why I felt the need to comment. I liked how you went through every detail, explaining why a certain value is there and its significance rather than just presuming (common in other dcf tutorials). Thank you
Greetings Mr. Greene Thanks so much for this masterful, yet simple way, to explain the topic from the modeling perspective and the financial math/ financial analysis/impact on valuation. I have developed the first model, just following your video. It was a hard work that paid off, because I understood everything and that thanks to your generosity, while providing to us this contribution free of charge and full of professional lecture. My recommendation to everybody; develop the model yourself. You will learn more by doing so, than to asking for the excel template. My gratitude goes with this note Mr. Greene.
Thank you very much for the easy and clear explanation. I think you missed to deduct the risk free rate when calculating the cost of equity, also the PV of the 2013 CF $100 Am I correct?
Great Video! Would it be possible to provide a download link to your excel sheet? It would be very helpful for many viewers in developing their own DCF valuations.
The terminal value should be shown for year 2018 instead of 2019 for value at end of year 2018 to represent the value of benefits after 2018. The FCF for 2019 of should be 100*1.1^5 * 1.03 = 1.66 and not 177 shown.
If I want to improve the company value is high, I will setup optimal capital Structure and I think I will setup the ratio between the short-term asset and long-term asset > 1. How do you think?. Thank you.
Hi Dew, I would like to introduce you to the free online business valuation software of Ratiba . I hope it is useful for your business. retiba.com/online-valuation/discounted-cash-flows/ Online valuation tools in this software are : 1. DCF Method 2. Risk Factors Summation : retiba.com/online-valuation/risk-factors-summation/ 3. Multiples Method : retiba.com/online-valuation/multiples-method/ 4. Score Cards Method : retiba.com/online-valuation/score-cards-method/
For the market value of debt, should I input the total market value of debt that firm has (over their entire lifetime), or just the total of the most recent year?
wonderful video. Thanks for posting. I am just beginning to study Ibanking. Do you have any suggestions on how I can memorize all these formulas and calculations? I've been trying to keep up with the model by building a copy along with the video, but I get lost when you are calculating. Any suggestions would be a big help. thanks!
Hi, great video, perhaps one of the best out there! One slight mistake (correct me if I'm wrong): While calculating Cost of Equity using CAPM, at 9:05 your formula reads Rf + beta*(Rm) Shouldn't you subtract Rf from Rm before multiplying it with the beta?
Outstanding Video! Well done. This is probably the most insightful video I have seen to date on the DCF process. Thank you for posting. I would love to see a video or a series of videos where you walk through the actual process determining the Market Risk premium using the different models, CAPM, DDM, etc. It would be helpful to see where the data is pulled from and how it is calculated.
Hello, Can I check for the firm value, do you have to include the Year 0 cash flow? basically the 100 that doesnt require discounting since it's year 0. firm value should be 1712?
Great refresher, truly!! However, I believe your debt-to-mkt ratio came out wrong for some reason. Think it should have been a clean 10%. Please correct me if I'm wrong
How cost of equity is 9%? If we are using the formula it is coming as 5.5%, but in the video risk free rate is not deducted from market risk premium before multiplying with beta. Instead beta is directly multiplied with risk free rate. Why is it so?
Very helpful Video. I have a question though. While calculating the Firm Value, you added all present values but why didn't you add the present value of YEAR ZERO i.e. 100 ?
+narendra reddy I hope you see this comment, remember the definition of value of an asset, it is the present value of all FUTURE expected cash flows of a business. In this scenario, he wants to evaluate the share price of this particular company in 2013, thus you don't add the present value of period 0. The only scenario when you have to use cash flow in period 1 is when you have a negative cash flow in period 0, it could be due to purchasing equipment for instance.Hope it makes sense
What if I have FCF for the company in negative figures? shall i use FCF to Equity ???? and if yes, shall i discount them still by WACC or by cost of Equity ? Thank you
I think he was just trying to show how sensitive intrinsic valuation can be to the terminal value--so a firms FCF can be high as you want, if the terminal growth is low, it won't matter what your cf's are because management ran that shit to the ground.
one of the biggest problem with this approach is you use an initial value of FCF ( I assume tht you used the recent reported FCFF of the company) , while most people think it's better to use all other available historical fcf's, find the average growth/decline rate of those and use it to calculate all future FcF's. then start discounting them. doing that we probabely do not need to go over 4 years projected years.
Excellent video! Question Dr. Greene, at marker 9:00 you state that the Cost of Equity is: Risk Free Rate + Beta * Market Risk Premium. Shouldn't this be multiplying the Beta, rather than adding? It seems if the stock is only as volatile as the market (Beta 1.0) then Beta would have no effect on the Cost of Equity. I see Beta as a multiplier, not as something to be added. Please enlighten us on this. Thank you.
Dear Friends, I have confused between company valuation and capital budgeting use DCF method: 1/ With company valuation by DCF method, I use Free Cash Flow and discount rate (ex: WACC) evaluate?. 2/ With Capital Budgeting by DCF method, I use Operating Cash Flow and discount rate (ex: WACC) evaluate?.
The risk free rate can be a 10yrs bond, which you can find on yahoo, just click markets and look for bonds. Market risk premium can be your own self defined rate, I normally use 9% or you can us the average returns over a set period, 10yr, 20yrs etc..... Hope this helps
Can someone else confirm his WACC formula is correct? I believe its wrong as he uses debt ratio and equity ratio, when it should be Debt/(debt+equity) and equity/(debt+equity). basically ratio of debt to debt and equity value, and equity to debt and equity value.
First, I would really like to thank you very much for your precious contribution and then I would like to ask you how one can make the model more complicated and hence accurate?
You are missing Equity to MV ratio and the calculation of for WAAC is wrong you never compute the weight of the Equity you used the weight of the Debt twice
Watched this video in 2020 and I like to appreciate the creators work he simplified everything and solved my all doubts
Stellar job! I've watched a lot of dcf tutorials, and this one is bar far the most insightful which is why I felt the need to comment. I liked how you went through every detail, explaining why a certain value is there and its significance rather than just presuming (common in other dcf tutorials). Thank you
Greetings Mr. Greene
Thanks so much for this masterful, yet simple way, to explain the topic from the modeling perspective and the financial math/ financial analysis/impact on valuation.
I have developed the first model, just following your video. It was a hard work that paid off, because I understood everything and that thanks to your generosity, while providing to us this contribution free of charge and full of professional lecture.
My recommendation to everybody; develop the model yourself. You will learn more by doing so, than to asking for the excel template.
My gratitude goes with this note Mr. Greene.
Wow!!!! I didn't blink my eye...loved the video and they way you explained.
Dear Dr. Greene, thank you so much for the 2 excellent videos with very understandable explanations! Appreciate it.
Six years later...THANK YOU for this insight!
Thank you very much for the easy and clear explanation.
I think you missed to deduct the risk free rate when calculating the cost of equity, also the PV of the 2013 CF $100
Am I correct?
Exactly My doubt
Thank you so much, for the first time ever I understood systematic way of calculating. Thank you so much.
Has anyone been able to find/recreate this excel template? It would be greatly appreciated.
Thanks
Search Adam Khoo stock trading courses and you will learn a lot
Hi did you get a copy if the dcf by mr Greene??
Great Video! Would it be possible to provide a download link to your excel sheet? It would be very helpful for many viewers in developing their own DCF valuations.
Its late... but here haha
drive.google.com/file/d/0B_9Ooz5Y7xZFRmRjUVdIOFdpd2c/view
how do I translate google sheets into excel? so that formulas will carry over
D/E Ratio is wrong
Thank you Gunslinger!
The terminal value should be shown for year 2018 instead of 2019 for value at end of year 2018 to represent the value of benefits after 2018. The FCF for 2019 of should be 100*1.1^5 * 1.03 = 1.66 and not 177 shown.
Thank you for the great lesson for DCF. from Korea
Thank you for this. I was just able to finish my assignment using the knowledge you shared in this video !!!
Fabulous Jason
Thank you for making DCF so much easier for me to understand.
Maureen
Very helpful video. Thank you. Could someone direct me to video that explains methods of forecasting growth rates (suitable for DCF modelling).
Wow amazing! Thank you so much for doing this video , greatly appreciated !
Thank you for the video! Is there anyway you could post the excel file so we can access it?
If I want to improve the company value is high, I will setup optimal capital Structure and I think I will setup the ratio between the short-term asset and long-term asset > 1. How do you think?. Thank you.
This is good. Absolutely what I was looking for. Thank you very much.
Hi Dew,
I would like to introduce you to the free online business valuation software of Ratiba . I hope it is useful for your business.
retiba.com/online-valuation/discounted-cash-flows/
Online valuation tools in this software are :
1. DCF Method
2. Risk Factors Summation
: retiba.com/online-valuation/risk-factors-summation/
3. Multiples Method
: retiba.com/online-valuation/multiples-method/
4. Score Cards Method
: retiba.com/online-valuation/score-cards-method/
is there a link to download the excel file/model which you have made?
How to calculate the growth for a firm from using the historical data available?
For the market value of debt, should I input the total market value of debt that firm has (over their entire lifetime), or just the total of the most recent year?
Thanks! Concise and just what one needs for basic understanding or quick memory refresh.
Really interesting and well done!
Clear and easy to understand
wonderful video. Thanks for posting. I am just beginning to study Ibanking. Do you have any suggestions on how I can memorize all these formulas and calculations? I've been trying to keep up with the model by building a copy along with the video, but I get lost when you are calculating. Any suggestions would be a big help. thanks!
When you summed up all the future cash flows why didn't you add the year 0 cash flow?
+Aaron Chow Because the year 0 isn't in the future.
+Embiv IE thanks.
Hi, great video, perhaps one of the best out there! One slight mistake (correct me if I'm wrong): While calculating Cost of Equity using CAPM, at 9:05 your formula reads Rf + beta*(Rm) Shouldn't you subtract Rf from Rm before multiplying it with the beta?
I was also confused about this but then I realised: 5,5% is not Rm, it is (Rm-Rf) which is the Market Risk Premium, so his formula is correct.
Outstanding Video! Well done. This is probably the most insightful video I have seen to date on the DCF process. Thank you for posting. I would love to see a video or a series of videos where you walk through the actual process determining the Market Risk premium using the different models, CAPM, DDM, etc. It would be helpful to see where the data is pulled from and how it is calculated.
Hi, can anyone explain how to work with the "amount of shares outstanding" if there are preference shares and equity shares?
Hello,
Can I check for the firm value, do you have to include the Year 0 cash flow?
basically the 100 that doesnt require discounting since it's year 0.
firm value should be 1712?
Great refresher, truly!! However, I believe your debt-to-mkt ratio came out wrong for some reason. Think it should have been a clean 10%. Please correct me if I'm wrong
Any chance of you sharing that excell file?
How cost of equity is 9%? If we are using the formula it is coming as 5.5%, but in the video risk free rate is not deducted from market risk premium before multiplying with beta. Instead beta is directly multiplied with risk free rate. Why is it so?
I have the same Re as per my calculation which is 5.5%. Why beta is directly multiplied with market risk premium ?
Very helpful Video.
I have a question though. While calculating the Firm Value, you added all present values but why didn't you add the present value of YEAR ZERO i.e. 100 ?
+narendra reddy I hope you see this comment, remember the definition of value of an asset, it is the present value of all FUTURE expected cash flows of a business. In this scenario, he wants to evaluate the share price of this particular company in 2013, thus you don't add the present value of period 0. The only scenario when you have to use cash flow in period 1 is when you have a negative cash flow in period 0, it could be due to purchasing equipment for instance.Hope it makes sense
Very clear explanation! excellent!
can you please tell me how you got ur excel to do the templates like that for you?
I too got the same question, where to get this template
Where can I find this excel template in this video?
What if I have FCF for the company in negative figures? shall i use FCF to Equity ???? and if yes, shall i discount them still by WACC or by cost of Equity ?
Thank you
AHMED MAGDY MOHAMMED FARID ELSAYED
where you based?
AHMED MAGDY you dont use this model for a company with negative cash flows.
is it right to forecast/ project FCF that rough? why not projecting the financial statement and measure the FCF for each year?
I think he was just trying to show how sensitive intrinsic valuation can be to the terminal value--so a firms FCF can be high as you want, if the terminal growth is low, it won't matter what your cf's are because management ran that shit to the ground.
one of the biggest problem with this approach is you use an initial value of FCF ( I assume tht you used the recent reported FCFF of the company) , while most people think it's better to use all other available historical fcf's, find the average growth/decline rate of those and use it to calculate all future FcF's. then start discounting them. doing that we probabely do not need to go over 4 years projected years.
Excellent video! Question Dr. Greene, at marker 9:00 you state that the Cost of Equity is: Risk Free Rate + Beta * Market Risk Premium. Shouldn't this be multiplying the Beta, rather than adding? It seems if the stock is only as volatile as the market (Beta 1.0) then Beta would have no effect on the Cost of Equity. I see Beta as a multiplier, not as something to be added. Please enlighten us on this. Thank you.
I withdraw this comment, other sources show this same formula. I'm still puzzled as to why it's added but I can live with it.
Great explanation on DCF. Can you please share the template used here?
Amazing video, have been looking for something like this.
can you provide a link to download the template?
just take notes on his and make you're own. The FCF one is way worse to make.
Dear Friends, I have confused between company valuation and capital budgeting use DCF method:
1/ With company valuation by DCF method, I use Free Cash Flow and discount rate (ex: WACC) evaluate?.
2/ With Capital Budgeting by DCF method, I use Operating Cash Flow and discount rate (ex: WACC) evaluate?.
Thank you so much from India!
How to use this when the Initial Cash Flow for the firm is negative
Thank you sir
really appreciate your work.
Can anyone provide information about risk free rate and market risk premium? How do we calculate it?
The risk free rate can be a 10yrs bond, which you can find on yahoo, just click markets and look for bonds. Market risk premium can be your own self defined rate, I normally use 9% or you can us the average returns over a set period, 10yr, 20yrs etc.....
Hope this helps
what if we have year 7, 8,9,10,..? Can we just drag the cursor?
is the risk free rate a 3month US treasury bill?
+tyron gray Use the long term 30 year US treasury as the discount rate.
+kenneth kumentas Thank you
According to several sources, Buffet uses the 10 Year note as the Risk Free Rate.
the best video ever
Awesome Video!
could someone explain to me how he got these values for risk free rate and market risk premium?
The risk free rate is the 10 year us bond, and the market risk premium is the average annual return - risk free rate.
Can someone else confirm his WACC formula is correct? I believe its wrong as he uses debt ratio and equity ratio, when it should be Debt/(debt+equity) and equity/(debt+equity). basically ratio of debt to debt and equity value, and equity to debt and equity value.
Great explanations thanks.
Very helpful lecture. Thanks
Great insight thank you!!
First, I would really like to thank you very much for your precious contribution and then I would like to ask you how one can make the model more complicated and hence accurate?
As FCF is in millions does that mean each share is worth 19.86 million
Why are you not including the PV of year 0 in your model? That's $100mm of value you've excluded.
Can u share excel file
Awesome videos. Shame stopped uploading
with reference to this video, can anyone help me with calculation of Pre-Tax Cost of Debt !!
Please !!
please do you mind sharing the template
drive.google.com/file/d/0B_9Ooz5Y7xZFRmRjUVdIOFdpd2c/view
You are missing Equity to MV ratio and the calculation of for WAAC is wrong you never compute the weight of the Equity you used the weight of the Debt twice
fantastic
Please share spreadsheet
Awesome!!!
good job. Thank you
Prediction cannot be accurate, so basically this method is just play the the numbers game
As is every forecast. It's called calculated risk.
thanks much!!!
great great great
U D Man!
i love you
Have you ever used this to actually make money?
I can't understand it 🙃
THOSE LOOKING FOR TEMPLATE: drive.google.com/file/d/0B_9Ooz5Y7xZFRmRjUVdIOFdpd2c/view
my apologies I am wrong
Sir superb teaching.sir please give ur mail I'd I want your help.i want to learn more.thank you.
I just fall asleep