How to Build a Discounted Cash Flow (DCF) | Step-By-Step Guide From Ex-JP Morgan Investment Banker
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- Опубліковано 19 чер 2024
- In this video, I provide a step by step guide on how to build a Discounted Cash Flow (DCF) model.
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⏱Timestamps⏱
0:00 - Introduction
1:28 - Alto IRA
3:01 - What is a DCF?
4:12 - The 5 Steps of a DCF
4:36 - Step 1 - Projecting Free Cash Flow
12:51 - Step 2 - Calculating WACC
19:34 - Step 3 - Calculating Terminal Value
23:13 - Step 4 - Discounting back to Present Value
24:16 - Step 5 - Calculating Implied Share Price
27:00 - Advanced Topics
🔎Disclaimer🔎
All content in this video is for entertainment purposes only. I am not a professional financial advisor and my statements are not to be taken as instructions or directions. In addition, some of the links above are affiliate links, meaning that at no additional cost to you, I may earn a commission if you click through and make a purchase.
#dcf #valuation #stocks
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is EBIAT the same as NOPAT?
Love these follow along videos. Find them very helpful for learning the basics
I just want to say thanks for this video. Couldn’t find much on a step by step tutorial DCF. 🙏🏽🚀
Clean workbook formatting, easy to follow PPT's, and step-by-step instructions. FANTASTIC instruction methodology, thanks for the informative content!
Those video are so cool ! Complicated to traduce everything from english to french but it makes me step up. Every step count when you have an objectives
Ben your literally a gem appreciate all work!!
This video has been unbelievably helpful! Thanks so much! :)
Ofc you have more than 100k subscribers, you are sharing a wealth of knowledge here!
hey Ben, nice video! Would like to see LBOs and Power Point presentation you did at JPM. Ould you do a video about that?
both of these will be coming soon!
Your insights on operating assets and operating liabilities. Your insights into years used to project and even mentioning using 20-30 years at JPMorgan. Also really breaking down the information you value worth projecting or using. All very useful, thank you. This was without a doubt your best DCF video yet. It was explained very well.
I was interested in the concept of years used forward, cause really all we're doing is trying to predict a future market cap in todays value. I also realized the market can move rather quickly, so a long projection isn't always going to be the case, it's just simply a way for the calculation to give us a fair idea if we weight it with those years. However with the recession coming those years will likely matter (lol).
thanks so much for the nice comment!
⏱Timestamps⏱
0:00 - Introduction
1:28 - Alto IRA
3:01 - What is a DCF?
4:12 - The 5 Steps of a DCF
4:36 - Step 1 - Projecting Free Cash Flow
12:51 - Step 2 - Calculating WACC
19:34 - Step 3 - Calculating Terminal Value
23:13 - Step 4 - Discounting back to Present Value
24:16 - Step 5 - Calculating Implied Share Price
27:00 - Advanced Topics
Ada
Great video and explanation. FYI you can make your Ticker a 'Stock' Data Type in excel which gives you access to some useful info like market cap, beta, share price etc so you don't need to keep updating manually. Worth giving it a try :)
DUDE thank you so much for including the template.
Great video, mate. Very well simplified :)
This video was really helpful! Thank you so much.
Good stuff. Keep em’ comin!
Great video, Ben! Keep rocking
5 minutes in. Subscribed. I could immediately tell content is legit.
Looking forward to your in-depth video explaining DCF. Everyone else covers a dumbed down DCF, but I want to understand it like the professionals do.
Man this really does help for us beginners
Nice and clear explanation, only thing I miss is how we got the approximations of Revenue, CAPEX and Taxes in income statement section.
Great work, clean and precise on everything. Only thing i would argue on is the TGR being equal to GDP growth. Through my experience i’ve always learned to be conservative when valuing a company and therefore have a TGR usually 1-2% lower than GDP growth
If you're generating a return less than or equal to inflation, you wouldn't be purchasing stocks over bonds unless you owned a majority share.
Thanks so much for the video!
Loved this.
this has value, thank you!
Thank you! Very helpful.
Thanks for the awesome video!
Hi rareliquid, this video was highly insightful.
please do a video on M&A transaction/modeling as well.
Hey Ben, thank you so much for this incredibly insightful video. I have a question though: If the change in networking capital is already negative, don't we add it instead of subtracting? Thanks :)
Great video, thanks!
Hey Ben, any chance you would be able to make a quick video on finding the financials for this model? Great video.
thanks for these!
Thank you! Please also teach a thorough LBO model
@rareliquid Love your videos thanks for all your help! I'm a bit confused about how you get the projected revenue amounts and rates though, could you clarify where $525,188 and 11.8% are derived from?
Nice! DCFs are a little intense for me, so I'll chip away at this over the week ✌️
Love the vid, I just think there is a little mistake when calculating the cost of equity at 16:30. It is a + like u mention later instead of x
I just wanted to say how much I appreciate your commitment to helping traders succeed. Your strategies are so well researched and effective, and your willingness to share them with us without any expectation of payment is truly inspiring. Thank you for being such an amazing teacher and mentor.
Awesome videos dude! Have been working through your whole channel - congrats on Wharton!
Question. In Step 1, why did you project D&A as a % of revenue instead of as a % of CapEx?
Awesome vid❤
Thank you for your content
This is so awesome!! Could you share the template for the DCF with the multiple cases (conservative, base, etc.) as well please? I’ve been struggling with the formatting for so long and it would be a tremendous help. Thanks so much for this whole DCF series, it’s been a lifesaver!!!
did you ever find it?
I also want it :)
Thank you so so much!!
Great video! Seeing the DCF built out from scratch helps me visualize the process and apply it in practice. Just curious, were estimated revenue growth, EBIT margin, D&A, etc. figures for 2022-2026 based on historical data in the sector? Or was it more of a forward-looking estimate based on sector growth, macroeconomic factors, etc.? Maybe a little bit of both? Any information on estimating forward-looking estimates of revenue growth, future margins, etc. is helpful. Thanks
great question, just watched the video and I has the same question when I noticed the forecasted revenues being hard coded
thank you sir!
Hey! This is very helpful! Can you pls do the sensitivity analysis and scenario analysis methodology?
The best, thank you
Can you also do an instruction video for DDM and RI model? Some corporations do not operate in a way other firms do so DCF is not applicable for them. Thanks
hi i have some questions, how do you determine the income statement and casflow items from year 2022-2026? And how do you calculate (or get the data) for 'cost of debt', 'risk free rate', and 'market risk premium'? Thanks. Great content.
Cost of debt is the yield to maturity (or interest rate) that the debt is supplied at, risk free rate is generally the yield to maturity of 10 year T bills, market risk premium is the expected return of the asset minus the risk free rate. Hope this helps
You are the best, thank you :)
Where did you get all the projections? Did you calculate them, and if so how, or did you find them from an outside source? Building my own DCF for an application so I'd really appreciate some advice.
Hello! Thank you for such a cool video, just one remark you had a mistake on the video with "What is WACC" where you multiplied the risk free rate in the formula instead of adding it as you explained further on.
I'd love a video on how to calculate the diluted shares outstanding
Awsome video! How do you automatically get data for a new company into the same excel sheet? Or do you have to do it manually? Thanks
Hi Ben, thanks a lot for this wonderful video ! I am doing my Masters degree and now quite interested in the wealth management private banking division, what would you recommend to prepare for this position
Can you do a video of PowerPoint presentation skills and most common shortcuts there as well?
Hey buddy, great video! I'm wondering if risk-free rate can be used to replace WACC/discount rates?
Thank you very much for all the useful information, especially the how you answer interview question on DCF. I am wondering if you can do the similar thing with 3 statements models. I have done it but don't know how to put them into words and sumarization. Appreciate your reply.
thank you for showing this !! how do you make predicions for D&A ?
Thanks man. Kinda forgot how to do this from Business school already 😂. 🍻
no prob haha
Very good video ! Really interesting ! Do you know if a database with historical DCF analysis perform by different analysts exist ?
Thanks a lot !
Awesome! Thank or the video
Note: where did u find the Cash and Debt? I search on BS but data does not match.
Hey Ben, I asked you about 2 weeks ago which keyboard you use. Ever since I got it my wristpain from working 10-12 hours a day went away almost completely. Thank you so much for the recommendation!🙏🏼🙏🏼🙏🏼
Since I still got problems with my right hand, I wanted to ask which mouse you use😃
Thanks alot for this
no prob~
Hi! Thanks for the video really appreciated. Quick question: how did you make the %growth in revenue and other assumptions?
Please make a video on advance topics as well. It kind a gives clear picture of DCF model otherwise learning part by part would be very confusing.
Thanks!
No problem!
Rareliquid what are some better ways to understand what accounts are operating assets and liabilities? THis part gets me so hung up.
Can you please also make videos on treasury stock method, comparable company analysis and precedent transaction analysis.
Thanks for sharing your knowledge in these kind of video. It's very useful! I have a question. How can I calculate the TGR? And, can I replace the WACC with a discount rate? For example, 15% instead of the Wacc. Thanks!
tgr is usually rate of growth of economy and so for US companies, around 2-3%. and wacc is same thing as discount rate!
9:55 hey , how did you arrive at the projected growth in revenue figures and projected growth in EBIT figures ? Was that a product of some calculation or was that a general assumption?
Thanks for Sharing. I liked it. I ve seen a theory where incorporate two concepts : SA( Surplus assets) and M ( Minority) to calculate Equity Value. What can you tell me about this ? Thanks in advance
Liquid, could you do a desk setup video sometime? Introducing your gadgets etc
yup will be doing this in late august or early september
@@rareliquid awesome! Looking forward to it man!
Hey do you have a Video Where you explain step by step how make the assumptions? Would be awesome
How do you find the growth rate on the forecast years ? (for the FCFF)
Love your vids. My one question however is, how does a retail investor such as myself gain access to analyst forecasts for financial metrics? Bloomberg and FactSet are way out of my budget. Would appreciate it if you could share any alternatives which are more viable for retail investors such as myself. Thank you.
You could also just forecast with your own assumptions based on historical data.
Hey! You are considering market cap as equity value; Isn't that should be derived from balance sheet equity ?
4:40 I guess in the first line of FCF calculation, you need to put operating income instead of EBIT while they are not the same, so the first line which will be NOPAT is calculated from Operating Income*(1- Tax rate)
EBIAT is synonymous with NOPAT
Hi Ben, think there's a mistake in the Cost of Equity formula. In the slides it is RFR x Beta x (Exp Market Return - RFR) but in the excel it is RFR + (Beta x (Exp Market Return - RFR))
The excel actually has the correct formula for cost of equity. It’s an error on the slides.
i also wanted to mention that .
CAPM
Where exactly did you get the projections for the income statement and cash flow items?
Hey Ben, I have questions, why at @9:28 to get projected revenue why have you did this =previous (1+growth rate)? I want to know why we are adding one here (1+....)?
I may have missed it but where do those projected growth values come from?
Hi, did you ever do a more exhaustive DCF video?
Hello Ben I live in Turkey. In here,right now, there is a huge enflation ( over %150) in this situation people always says you can’t use DCF model because you can’t predict future growth by looking historical datas.
Is it true ? Or do you have any suggestion to make projection ?
Do mind sharing the slides with the steps and points you used in the video?
how did you get the revenue for 2022,2024,2025 etc. As in what assumptions did you make to get the different growth rate percentage
Is calculating sensitivity analysis important in DCF valuation.
Havent watched content like this since Pharma Boy
Dear, it was great representation of DCF. Please help me to download the DCF template. I can't download the template from the link.
Can you explain how did you get TGR?
Good
Hello my friend! what program do we use to record the videos?
Thank you Please Make some videos from scratch for financial modeling for college students.😃
Smh @UA-cam how is this man not verified yet????
Do a review of the show Industry on HBO. Its about IB in the UK
Where do I get TGR for calculating Terminal Value? Why can't I apply the difference in growth between year 2025 and year 2026? Please help
When will we get the advanced version?
the cost of equity formula in the slide has a typo. risk free rate PLUS beta, not TIMES beta.
Why isn’t cost of sales and sg&a expenses taken into consideration? Are they optional when valuing a company?
where did you get the %growth rate ? I mean can you estimate it or is it based on the company's/ professional's assumptions ?
How do you forecast EBIT without using others estimates?
What do you do if a company has negative cashflows?