Have been searching for awhile on a decent tutorial on DCF but this is arguably the best I've seen so far. Thank you Dr Greene for your time and excellent presentation.
Mr. Greene, this is a very old video, but this was exactly what I was searching for almost a month. A real company example. Thank you for this. Really helped me in understanding if a company is worth investing, keeping in mind all this is an assumption ! Wonderfully explained :)
I consider myself very lucky to have found these 2 videos. I spent all day creating this spreadsheet and meticulously going thru the videos. Doctor Greene, you are the first analyst I've seen that isn't completely full of shit. Thank you, Thank you.
Mr. Greene, This was a phenomenal lecture. I hope that you can maybe do a more indepth or advanced version of this for students like myself looking to get more technical. I think providing rationale about how one picks a market risk premium and what a discount rate really means would help. Not sure if you are still making videos. But this was great!
I have watched several videos about DCF/Valuation. For me, these (parts I and II) are the best I've seen about the subject. Congrats to PhD Jason Greene. Marco Reichert/Brazil
Thank you for helping me make sense of DCF. Its opened a new door for me, when it comes to understanding finance, and that even paid professionals can only provide estimates.
I just completed a Real Estate and Development Certificate, one of the main topics was valuation. I wish I had seen these videos earlier. Great simple and to the point - fantastic videos (Part I and II). Please upload more.
Great video. Content and presentations are brilliant. Cristal clear explanations and self speaking exemple. Thank Jason for sharing your time to educate people!!
Dr.Greene Amazing video, amazing way to calculate the valuation based on discounted free cash flow, I had a question about your "Market Value of Debt", you have 22.7 Billion dollars , can you please direct me if this value came from the "Balance Sheet" of MSFT , if so which line items.Your teaching method was very soothing to hear and undestand.. Please keep up the great work Thank you
Thanks Dr.Green for part 1 and 2 of these videos, very informative and easy to follow. Why have you omitted the deduction of the risk free rate from the market risk premium in the brackets. Calculating cost of equity using CAPM model is ke = rf + b*( rm - rf ), it appears you have used ke = rf + b*( rm ) in both part 1 and 2 of these videos.
The market risk premium is rm-rf. I have entered it into the model as the quantity rm-rf, not as rm. Therefore, there is no need to subtract rf, since I am referring to the premium on the market (over and above the riskfree rate), not the return on the market.
A very good lesson in DCF, I truly can say that I learned a lot just from watching this. Regarding DCF just needed to ask if it's is possible to apply def on a company that's cash flow is negative? How would you valuate it in the Valuation box.
Mr. Greene A difficult concept explained in a simple way . can u help in understanding how did u calculate the Geometric Average growth rate & where do we use it in DCF
Hi Jason - top video. How do I derive the Geometric Avg Growth Rate? I've used: =GEOMEAN(C29:32) but I recieve a #Num! error. I think it's got something to do with the minus 16 but I can't figure it out. Anyone else know?
Thank you, James. The geometric average growth rate is calculated from the cash flows, not their %Chg. Take the ending, divided by the beginning, to get the growth over the entire period, then take that to the Nth root, where N=number of periods. Subtract 1 from that last calculation. In the video, the geometric average growth rate is [(24,576/15,918)^(1/4)]-1 = 0.1147. General rule: do not use the =GEOMEAN() function on returns. You can use the function if you first convert the returns to gross returns, where gross return = 1 + return.
@@InvestmentsProfessor HI, thank you for the reply, but why is it 'to the power of n=1/4', instead of n=4? isnt n the periods? (in this case 4 years), why inverse it?
Neither Bloomberg nor Morningstar appear to display information as they did when the video was developed. This makes filling-in the model a bit more challenging. An updated video would be helpful.
Thank you very much Jason. The video is so clear and informative. I have a question about FCFF and FCFE. At 13m50s, I noticed that on Bloomberg, FCFE is higher than FCFF, does it mean Microsoft had borrowed more than repaid that year? If so, the capital structure must have changed (so WACC changes) and the same thing might happen in the following years. How can we cope with this issue in practice? Many thanks.
Thanks very much on your effort to produce such a high-quality educational video! Hope you can explain or provide more information on projecting free cash flow? Any systematic method for the projections?
Thank you very much for this video! I am writing my bachelor thesis on this topic and i still have problems to estimate the growth rate for the short-term forecast. my company is operating in the renewable energy sector and especially here, the ebit and its capex is so unpredictable!
Hi Jason, How do you deal with the cell for the yield to maturity on bonds when the data is not available for companies. Lets say the bonds are not traded or simply no data exists for them (in case of smaller less known or followed companies)?
hi why do you try to match your intrinsic value to the real market price? intrinsic value shows how much the stocks is able to grow at the current market price.
If you apply a reasonable growth (growth rates greater than -100%) rate to a negative cash flow then future cash flows will never be positive. Therefore, be careful that you actually forecast future cash flows in this situation, rather than simply applying annual growth rates.
Dr. Greene. Is long term growth rate(3%) your estimation of US GDP growth rate? If I look for growth rate for some country like Japan, it would be negative. So how to set this long-term growth rate as it located in Japan?
Excellent explanation of the model. Question: You subtract the Debt Value from the Firm Value. Would you not add the Cash on hand to get a true Equity Value?
Great Video! Can i use FCF to Equity if FCF was in negative numbers for a certain company ? and if so, shall i discount the FCF to Equity still by WACC or by Cost of Equity ? Thanks,
how many years is the standard dcf model? in theory, would a longer (20 year) forecast produce a smaller terminal value NPV than the NPV of the initial FCF?
Thank you for the video, sir. But I'd like to know why you used FCF instead of FCFF which is the most commonly used CF method. Is it because of simplification?
Good stuff! It’s clean , very legible, and not have extra nonsense that I’ve seen in other ones which is just a wreck with data that don’t make sense and hard to understand. Why not use instead the exact numbers of shares outstanding, instead of the rounding number you populated in here? That would work better, no? Also shouldn’t these types of analysis also need a total of 10 years worth of data from what Ive read, in order to get more correct numbers and have ample sample numbers? To what extent is that correct? Also, the DCF modeling as you performed here, the Year 0 is always the prior year (where you have the last year with completed annual numbers) compared to the present year? For example, you performed the analysis during the course 2014. So the prior year, 2013, would always be the ‘Year 0’ in this example? And how far into the future is too far out? How many years back is an appropriate amount of years when doing the Historical FCF data portion average CF numbers?
how do i account for post emplyment benefit obligation , derative financial instruments , investment properties in DCF valuation? i m trying to do valuation for UK grocers TESCO?
From where do you get the growth rate or are you just assuming that based on historical data the company will grow x amount of % / year. Just wondering since I'm doing a DCF on a different company.
Hello Jason, please help me out here. I am wondering where you got that template for excel, and what softwares to use (If Any). Please let me know ASAP, thanks
I agree with James. Build your own version that has features that make it most useful to you. Along with my other videos here, you should see most of the basics that go into the model. Building it yourself will also allow you to customize it and extend it. The model here is just the beginning...
This is what he mentioned in a previous comment: Thank you, James. The geometric average growth rate is calculated from the cash flows, not their %Chg. Take the ending, divided by the beginning, to get the growth over the entire period, then take that to the Nth root, where N=number of periods. Subtract 1 from that last calculation. In the video, the geometric average growth rate is [(24,576/15,918)^(1/4)]-1 = 0.1147. General rule: do not use the =GEOMEAN() function on returns. You can use the function if you first convert the returns to gross returns, where gross return = 1 + return.
Have been searching for awhile on a decent tutorial on DCF but this is arguably the best I've seen so far. Thank you Dr Greene for your time and excellent presentation.
One of the most interesting discussions of security analysis I have seen.
Mr. Greene, this is a very old video, but this was exactly what I was searching for almost a month. A real company example. Thank you for this. Really helped me in understanding if a company is worth investing, keeping in mind all this is an assumption ! Wonderfully explained :)
I consider myself very lucky to have found these 2 videos. I spent all day creating this spreadsheet and meticulously going thru the videos. Doctor Greene, you are the first analyst I've seen that isn't completely full of shit. Thank you, Thank you.
Mr. Greene,
This was a phenomenal lecture. I hope that you can maybe do a more indepth or advanced version of this for students like myself looking to get more technical. I think providing rationale about how one picks a market risk premium and what a discount rate really means would help. Not sure if you are still making videos. But this was great!
I have watched several videos about DCF/Valuation. For me, these (parts I and II) are the best I've seen about the subject. Congrats to PhD Jason Greene.
Marco Reichert/Brazil
very helpful. I was able to solve my hard assignment using this video. Thank you for sharing
Thank you for helping me make sense of DCF. Its opened a new door for me, when it comes to understanding finance, and that even paid professionals can only provide estimates.
I just completed a Real Estate and Development Certificate, one of the main topics was valuation. I wish I had seen these videos earlier. Great simple and to the point - fantastic videos (Part I and II). Please upload more.
This is one of the best video I have come a cross for learning DCF Valuation. Thanks Jason Greene!
Wow, thank you very much. I feel like I can actually do it myself after watching your videos!! Thankssss....
The best video I've ever watched! Thank you thank you thank you so much Dr. Greene for taking the time into making. Please keep making videos!!!
awesome jason, you truely simplified the model..very useful for many people
Great video. Content and presentations are brilliant. Cristal clear explanations and self speaking exemple. Thank Jason for sharing your time to educate people!!
Thank you so much! This was the best break-down with simple organization of the DCM. I was pretty lost before this. Thank you!
Fantastic would be an understatement. Thank you for such a wonderful video.
Thank you very much for creating this vid, its given me a better understand of the DCF model
These 2 videos were really informative, thank you.
Dr.Greene Amazing video, amazing way to calculate the valuation based on discounted free cash flow, I had a question about your "Market Value of Debt", you have 22.7 Billion dollars , can you please direct me if this value came from the "Balance Sheet" of MSFT , if so which line items.Your teaching method was very soothing to hear and undestand.. Please keep up the great work Thank you
Excellent demonstration! Thanks for sharing your knowledge!
Thank you professor for your great explanation...
Quite useful. makes it so simple to understand
Video is very much helpful.....watched it in 2020
7 years later, great vid, but who could have guessed future conditions like today's crazy market... ?
Loved the videos on the DCF model, very well explained. I would love to see a similar video using comparables approach.
This video is wonderful! Dr. Greene, thank you very much.
Hi Dr. Greene,
Could you please explain how to determine "pre-tax cost of debt and MV of debt" for a company that has not issued bonds?
it will be 0% if its an all equity firm
Dr. Greene, thanks for this excellent video presentation. Please consider making a similar presentation using economic profit.
Very good explanation of the model! Thanks a lot!
Perfectly delivered ! Thanks , hope u make more videos on valuation of real companies using different models
Can't thank you enough for this video!!!
you saved my life, keep rocking bro!
This is a very brilliant lecture. thank you.
Thanks Dr.Green for part 1 and 2 of these videos, very informative and easy to follow. Why have you omitted the deduction of the risk free rate from the market risk premium in the brackets. Calculating cost of equity using CAPM model is ke = rf + b*( rm - rf ), it appears you have used ke = rf + b*( rm ) in both part 1 and 2 of these videos.
The market risk premium is rm-rf. I have entered it into the model as the quantity rm-rf, not as rm. Therefore, there is no need to subtract rf, since I am referring to the premium on the market (over and above the riskfree rate), not the return on the market.
I understand now. Thank you for your explanation.
Great video! Thanks Dr. Greene!
Thk for your kind post, its very useful and helpful for me.God bless you and your fam.cheers
loved your style of explanation need some more videos on how to make valuation of stock price of the company,Thank you
Thank you for the lesson, it was very concise and informative!
This is amazing. Thank you very much for this great video.
thanks Jason , this is very helpful .
A very good lesson in DCF, I truly can say that I learned a lot just from watching this. Regarding DCF just needed to ask if it's is possible to apply def on a company that's cash flow is negative? How would you valuate it in the Valuation box.
Mr. Greene
A difficult concept explained in a simple way . can u help in understanding how did u calculate the Geometric Average growth rate & where do we use it in DCF
Is a your Excel DCF template available
Great video. What is the caalculation that was used to calculate the Terminal Value in cell H12?
PLEASE LET ME KNOW WHERE YOU GOT THAT TEMPLATE, I AM DYING TO USE IT. IT MAKES EVERYTHING EASIER
drive.google.com/file/d/0B_9Ooz5Y7xZFRmRjUVdIOFdpd2c/view?usp=sharing
Thank you, helped me better understand the concept.
Hi Jason - top video. How do I derive the Geometric Avg Growth Rate? I've used: =GEOMEAN(C29:32) but I recieve a #Num! error. I think it's got something to do with the minus 16 but I can't figure it out. Anyone else know?
Thank you, James. The geometric average growth rate is calculated from the cash flows, not their %Chg. Take the ending, divided by the beginning, to get the growth over the entire period, then take that to the Nth root, where N=number of periods. Subtract 1 from that last calculation. In the video, the geometric average growth rate is [(24,576/15,918)^(1/4)]-1 = 0.1147. General rule: do not use the =GEOMEAN() function on returns. You can use the function if you first convert the returns to gross returns, where gross return = 1 + return.
@@InvestmentsProfessor HI, thank you for the reply, but why is it 'to the power of n=1/4', instead of n=4? isnt n the periods? (in this case 4 years), why inverse it?
amazing video, enough detail is covered and it is explained in such a methodical manner. Question, how could I get my hands on this excel template?
same question
I made it exactly and I'll send you a copy but it'll cost you $20 to my PayPal acct.
Paul Ballas make one it's not hard
You're a jerk
Have one for free: drive.google.com/file/d/0B_9Ooz5Y7xZFRmRjUVdIOFdpd2c/view
Hi jason, how can i get the excel sheet what should i do? Thx
Neither Bloomberg nor Morningstar appear to display information as they did when the video was developed. This makes filling-in the model a bit more challenging. An updated video would be helpful.
Dr Greene, normally how do we determine the long term growth rate, other than looking at the forecast inflation rate?
Thank you very much Jason. The video is so clear and informative.
I have a question about FCFF and FCFE. At 13m50s, I noticed that on Bloomberg, FCFE is higher than FCFF, does it mean Microsoft had borrowed more than repaid that year? If so, the capital structure must have changed (so WACC changes) and the same thing might happen in the following years. How can we cope with this issue in practice? Many thanks.
Thanks very much on your effort to produce such a high-quality educational video! Hope you can explain or provide more information on projecting free cash flow? Any systematic method for the projections?
Thank you very much for this video! I am writing my bachelor thesis on this topic and i still have problems to estimate the growth rate for the short-term forecast. my company is operating in the renewable energy sector and especially here, the ebit and its capex is so unpredictable!
This was a great video on the discount Cash flow. I was stuck in my class about this topic I have better idea what to do to with my company. thanks
Hi Jason,
How do you deal with the cell for the yield to maturity on bonds when the data is not available for companies. Lets say the bonds are not traded or simply no data exists for them (in case of smaller less known or followed companies)?
nice video. Can you please make video about establishing financial forecast model ( i/s, b/s, cf)
loved this video, thanks for sharing!
Hello Jason , this looks cool . Can i know where can i get excel spreadsheet please.
Thank you so much, this helps a lot ! Are you planning on making new videos ?
In this Video why didn't you use the capital structure given by morningstar? thanks for the video.
Since I cannot find it on Morningstar, what websites/resources can I find the amount outstanding of a stock? Thanks.
hi why do you try to match your intrinsic value to the real market price? intrinsic value shows how much the stocks is able to grow at the current market price.
he is demonstrating how you can use this model to determine what the market's assumptions are.
Aaron VandeGuchte Perfect answer, Aaron! Thanks!
If a company has a negative Initial Cash Flow how will this affect the model?
If you apply a reasonable growth (growth rates greater than -100%) rate to a negative cash flow then future cash flows will never be positive. Therefore, be careful that you actually forecast future cash flows in this situation, rather than simply applying annual growth rates.
Dr. Greene. Is long term growth rate(3%) your estimation of US GDP growth rate? If I look for growth rate for some country like Japan, it would be negative. So how to set this long-term growth rate as it located in Japan?
CHEN Jintao It seems that the long-term growth rate should not be country-specific for firms doing business in a global economy.
Thank you. Jason
Extremely informative thank you! Are there or do you offer formal courses on stock / company valuation?
Can anyone explain why he gives two formulaes to calculate FCF but uses the simplified version (cash from operations- capital expenditures)??
Excellent explanation of the model. Question: You subtract the Debt Value from the Firm Value. Would you not add the Cash on hand to get a true Equity Value?
Thanks for the video! Just wonder if you wrote any book on valuation? Do you have experience for other market like Vietnam?
Great Video! Can i use FCF to Equity if FCF was in negative numbers for a certain company ? and if so, shall i discount the FCF to Equity still by WACC or by Cost of Equity ?
Thanks,
How did you calculate the geometric average growth rate through excel ?
Can please share slides or pdfs of your lecture in your description link. Will be of help to newbie finance enthusiasts.
how many years is the standard dcf model? in theory, would a longer (20 year) forecast produce a smaller terminal value NPV than the NPV of the initial FCF?
Really great video. Thank you!
Thank you for the video, sir. But I'd like to know why you used FCF instead of FCFF which is the most commonly used CF method. Is it because of simplification?
Good stuff! It’s clean , very legible, and not have extra nonsense that I’ve seen in other ones which is just a wreck with data that don’t make sense and hard to understand.
Why not use instead the exact numbers of shares outstanding, instead of the rounding number you populated in here? That would work better, no?
Also shouldn’t these types of analysis also need a total of 10 years worth of data from what Ive read, in order to get more correct numbers and have ample sample numbers? To what extent is that correct?
Also, the DCF modeling as you performed here, the Year 0 is always the prior year (where you have the last year with completed annual numbers) compared to the present year? For example, you performed the analysis during the course 2014. So the prior year, 2013, would always be the ‘Year 0’ in this example?
And how far into the future is too far out?
How many years back is an appropriate amount of years when doing the Historical FCF data portion average CF numbers?
hello i am wondering what was the algorithm used for calculating terminal value and also present value, please help me i am desperate at this point
Why would I use this over ben Graham's Intrinsic Value equation?
this has helped me understand thank you so much
Where do we apply the geometric avg growth rate?
where can I get the template that you used in this example?
What does the "(1-t)" in EBIT (1-t) means?
t is the tax rate.
Great teacher
Thank you Professor
hii can you share the excel template?
how do i account for post emplyment benefit obligation , derative financial instruments , investment properties in DCF valuation?
i m trying to do valuation for UK grocers TESCO?
thanks for the knowledge but i need a template
drive.google.com/file/d/0B_9Ooz5Y7xZFRmRjUVdIOFdpd2c/view?usp=sharing
From where do you get the growth rate or are you just assuming that based on historical data the company will grow x amount of % / year. Just wondering since I'm doing a DCF on a different company.
Thanks so much for teaching me lots of finance thing
wow, very good of ppt
How is Bloomberg Terminal "free" ? I think it costs $2K/month.
Hello Jason, please help me out here.
I am wondering where you got that template for excel, and what softwares to use (If Any). Please let me know ASAP, thanks
Teach us how u made that model and where to find risk free rate and market premium
Thanks a lot Greene
Has anyone been able to find/recreate this excel model? I would greatly appreciate it.
Thanks
It's better to follow it through step by step yourself.
I agree with James. Build your own version that has features that make it most useful to you. Along with my other videos here, you should see most of the basics that go into the model. Building it yourself will also allow you to customize it and extend it. The model here is just the beginning...
what are the excel formulas of chg% and average cash flow and geometric avg growth rate?
This is what he mentioned in a previous comment: Thank you, James. The geometric average growth rate is calculated from the cash flows, not their %Chg. Take the ending, divided by the beginning, to get the growth over the entire period, then take that to the Nth root, where N=number of periods. Subtract 1 from that last calculation. In the video, the geometric average growth rate is [(24,576/15,918)^(1/4)]-1 = 0.1147. General rule: do not use the =GEOMEAN() function on returns. You can use the function if you first convert the returns to gross returns, where gross return = 1 + return.
Thank you.
@@Natalyy10 HI, thanks, but why is it 'to the power of n=1/4', instead of n=4? isnt n the periods? (in this case 4 years), why inverse it?
Thank you. You're the best
what if firms initial free cash flow is negative
Thanks, you are amazing ❤️
Super love this video
Thanks, very helpful!