ValuationIntro12 min

Northwind Trading - DCF

Northwind Trading - 5-year DCF

Northwind is a profitable distributor. Build a five-year unlevered DCF and value the business.

You are given base revenue, growth, margin, tax, the reinvestment ratios, WACC, and terminal growth - the grey cells. Fill in the blue input cells.

Build it step by step

Project revenue off the prior year and the growth rate.
Work down to NOPAT: EBIT from the margin, then EBIT after tax.
Add back D&A, subtract CapEx and the change in NWC to reach free cash flow.
Discount each year with a discount factor of 1 / (1 + WACC) ^ t.
Sum the PVs, add a Gordon-growth terminal value discounted back, for enterprise value.

Cells grade live - a check turns green when your number matches within tolerance. Use end-of-year discounting and a terminal value off year-5 FCF.

Learn the concepts

Discounted cash flow

A DCF values a business as the present value of the cash it will generate. Project unlevered free cash flow, discount each year at the WACC, and add a terminal value for everything past the forecast horizon.

Free cash flow

Unlevered FCF = NOPAT + D&A - CapEx - increase in net working capital. NOPAT is EBIT taxed as if the firm carried no debt, which keeps the cash flow independent of capital structure.

Terminal value

The Gordon-growth terminal value capitalises final-year FCF at (WACC - g). It usually drives most of the enterprise value, so the growth and discount assumptions matter enormously.

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Works like Excel: click a cell and type, F2 to edit, Enter/Tab to move, drag the fill handle (bottom-right square) to copy formulas, Ctrl+C/V to copy-paste (interoperates with real Excel), and use $ for absolute references (e.g. =B15*$B$6).