DCF
Articles
The Discounted Cash Flow (DCF) Valuation Method: A Comprehensive Guide
The Discounted Cash Flow (DCF) method is one of the most widely used valuation techniques in corporate finance and investment banking. It helps investors determine the intrinsic value of a company by estimating its future cash flows and discounting them to present value using a discount rate.
What Is WACC (Weighted Average Cost of Capital) and Why It Matters
WACC explained: what it measures, how CAPM and the after-tax cost of debt feed into it, and why it's the discount rate used in every DCF valuation.
How to Calculate WACC Step by Step (Finance Interview Walkthrough)
A step-by-step method for calculating WACC in a finance interview — cost of equity via CAPM, after-tax cost of debt, and market-value weights — with a worked numerical example.
What Is Terminal Value in a DCF? Why It Often Drives Most of the Valuation
Terminal Value captures every DCF cash flow beyond the forecast period and usually makes up 60-80% of Enterprise Value. Here's what it represents and why interviewers probe it so hard.
How to Calculate Terminal Value Using the Gordon Growth Method (Step by Step)
A step-by-step walkthrough of the Gordon Growth Terminal Value formula, with a worked example showing why it often makes up most of a DCF's Enterprise Value.
What Is a DCF? The 3-Step Logic Behind Enterprise Value
A discounted cash flow is really just three steps: project cash flow, discount it, and sum it. Here's the core logic behind every DCF, with a worked example.
How to Calculate Enterprise Value with a DCF: Step-by-Step for Interviews
A step-by-step walkthrough of calculating Enterprise Value with a DCF: forecast free cash flow, discount each year, and sum to a single valuation.
How to Build a Multi-Year Unlevered Free Cash Flow Forecast for a DCF
Learn how to forecast Unlevered Free Cash Flow across a multi-year DCF: building revenue, EBITDA, EBIT, CapEx, and working capital into a cash flow stream ready to discount.
How to Build a Full DCF Valuation Model From Scratch: A Step-by-Step Interview Walkthrough
A step-by-step walkthrough of building a complete DCF model in an interview: revenue forecast, WACC, terminal value, and the bridge to equity value per share.
What Is Unlevered Beta? Unlevering and Relevering Beta Explained
What unlevered beta actually measures, why you strip out financing effects before comparing betas across companies, and how the Hamada equation moves between levered and unlevered beta.
How to Calculate WACC With Increased Leverage (Interview Walkthrough)
A step-by-step interview walkthrough of how WACC actually responds to increased leverage: relevering beta with the Hamada equation, recomputing cost of equity, and why WACC doesn't always rise with more debt.
What Is DCF Sensitivity Analysis? Why WACC and Terminal Growth Drive Your Valuation
DCF sensitivity analysis tests how Enterprise Value changes as WACC and terminal growth assumptions move. Learn why it matters and which assumption swings value more.
How to Build a DCF Sensitivity Table for Interviews (Step by Step)
A step-by-step guide to building a two-way DCF sensitivity table varying WACC and terminal growth rate, with a worked example you can use in interview prep.
Non-Operating Items in a DCF: Minority Interest, Associates & the Equity Value Bridge Explained
Why Enterprise Value from a DCF is not Equity Value — how minority interest, associates, and preferred stock bridge the two, explained for interview prep.
How to Answer the Enterprise Value to Equity Value Bridge Question in an Interview
How to answer the Enterprise Value to Equity Value bridge question in an interview — the right order, the sign logic for minority interest and associates, and common traps.
What Is Country Risk Premium in WACC? A Guide for Valuation Interviews
How the country risk premium adjusts WACC for emerging-market risk, why currency and illiquidity adjustments come with it, and how interviewers test this in valuation questions.
How to Calculate WACC for an Emerging Market Subsidiary (Step-by-Step)
A step-by-step walkthrough of adjusting WACC for country risk, currency mismatch, and illiquidity when valuing an emerging-market subsidiary, with full formulas and worked numbers.
What Are Real Options in DCF Valuation? (Expand, Abandon, Delay)
Real options explain why a standard DCF can undervalue a business. Learn how the options to expand, abandon, or delay a project are priced and added to NPV.
How to Calculate a Real Option Value in a Finance Interview
Step-by-step walkthrough of how to calculate the value of a real option (expansion, abandonment, delay) using a probability-weighted decision tree, interview-ready.
Cases
Advanced Case Study: Discounted Cash Flow (DCF) Valuation
Valuing a company using Discounted Cash Flow (DCF) analysis is one of the most fundamental yet complex methods in corporate finance. This case study will take you through a full DCF valuation process.
Calculating Unlevered Beta and Adjusting for a Private Company
Estimate a private company's Unlevered Beta from five peer companies, relever it to its target capital structure, and compute Cost of Equity via CAPM.
CapEx vs. D&A: A Manufacturer Mid-Expansion
This industrial manufacturer just broke ground on a new $200M plant. Walk me through what happens to CapEx, D&A, and Free Cash Flow over the next few years — and why a strong EBITDA margin doesn’t mean strong free cash flow here.
CapEx vs. D&A: An Asset-Light Software Company
Now look at a software company with the same $1.2B revenue and the same 22% EBITDA margin as the manufacturer. Walk me through why its CapEx and D&A barely move the needle on Free Cash Flow — and what would change that.
WACC: The Building Blocks
As a financial analyst, you're asked in an interview: "Walk me through how you'd calculate a company's WACC." Walk through the building blocks — the cost of equity via CAPM, the after-tax cost of debt, and the market-value weights — and show how they combine into the single discount rate used to value the firm.
Terminal Value: Gordon Growth
As a financial analyst, you're asked in an interview: "Walk me through how you'd calculate a DCF's Terminal Value using the Gordon Growth method, and explain why the growth rate assumption matters so much." Walk through how you'd answer that question, using a sample company's final-year free cash flow to show how the terminal value is built and why it ends up dominating total enterprise value.
Simple DCF: Three Steps
As a financial analyst, you're asked in an interview: "Strip a DCF down to its purest form — no Terminal Value, no complicated build-up. Just three steps: project the cash flow, discount it, and sum it." Walk through how you'd answer that question, using a small company's three-year free cash flow forecast to show how discounting and summing alone produce an Enterprise Value.
Full DCF from Scratch
As a financial analyst, you're asked in an interview: "Walk me through how you would build a full discounted cash flow (DCF) valuation from scratch — project the unlevered free cash flows, determine the discount rate, estimate a terminal value, and bridge the result down to an equity value per share." Walk through how you'd answer that question, using a five-year operating forecast to build the complete model end to end.
WACC with Leverage
You're valuing a company and want to understand what would happen to its WACC if it took on significantly more debt. Using the Hamada equation, unlever the company's current beta, relever it at a proposed higher debt-to-equity ratio, and recompute WACC to see the net effect.
Sensitivity Analysis: WACC vs. Terminal Growth Rate
You've just finished building a DCF valuation and your MD asks how confident you are in the output. Build a sensitivity table that varies both your discount rate (WACC) and your terminal growth rate assumption, and tell her which of the two assumptions moves Enterprise Value more.
DCF with Non-Operating Items
You've built a DCF and arrived at an Enterprise Value. Before you can get to a per-share equity value, walk through the full non-operating adjustment stack: net debt, minority interest, investments in associates, and preferred stock. Compute the diluted equity value per share.
International WACC
You're valuing an emerging-market subsidiary using a DCF built around local-currency cash flow forecasts. Your standard domestic WACC model doesn't capture the extra risk of operating in that country, the mismatch between the currency of your cash flows and the currency your risk-free rate is quoted in, or the illiquidity of the underlying business. Walk through how to adjust WACC for the country risk premium, correct the currency mismatch, and layer in an illiquidity premium — then compute the fully adjusted cost of capital.
Real Options in DCF
As a valuation analyst evaluating a growth-stage company with significant strategic flexibility, you are tasked with explaining why a standard discounted cash flow (DCF) can undervalue a business, and using real options thinking to quantify the extra value created by management's option to expand a project.