DCF Valuation
Discounted Cash Flow, from first principles to a full company model
9
modules
28
lessons
~3h
to complete
Master intrinsic valuation the way it's actually done on the desk - projecting free cash flow, building WACC, terminal value, and bridging to an implied share price. Then prove it in the simulator.
Your progress
28 lessons
13
Foundations
What a DCF is, why it exists, and the single idea every valuation rests on.
- ✓7m1.1What a DCF Actually DoesA DCF values a business as the present value of the cash it will generate in the future. Everything else is detail.
- ✓6m1.2Intrinsic vs. Relative ValuationThe two ways to value a company: from its own cash flows (DCF) or by comparison to its peers (comps). Pros know when to lean on each.
- ✓8m1.3The One Formula Behind EverythingValue equals cash flow divided by (discount rate minus growth). Master this perpetuity idea and terminal value will feel obvious later.
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23
Enterprise & Equity Value
The two ways to measure 'company value' - and the bridge between them that trips up most beginners.
- ✓6m2.1Equity Value (Market Cap)Equity value is what the common shareholders own. It's price per share times fully diluted shares - not basic shares.
- ✓8m2.2Enterprise Value & the BridgeEnterprise value is the value of the core operating business to ALL investors. Learn the bridge from equity value to EV and back.
- ✓7m2.3What Moves EV vs. Equity ValueOnly changes to the core business move enterprise value. Changes to capital structure move equity value but leave EV untouched.
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32
Multiples & Cross-Checks
How relative valuation works, the matching principle that keeps you honest, and how comps sanity-check a DCF.
- ✓7m3.1EV Multiples vs. Equity MultiplesEvery multiple pairs a value with a metric. The cardinal rule: the metric and the value must belong to the same investors.
- ✓5m3.2Using Comps to Cross-Check a DCFA DCF gives intrinsic value; comps give market value. Pros run both and investigate the gap rather than trusting one blindly.
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44
The DCF Process
The five steps of a DCF, the income-statement vocabulary you'll model, and how to read a company's history.
- ✓6m4.1The Five-Step DCF ProcessEvery DCF, from a back-of-envelope to a 5,000-row model, follows the same five steps. Learn the map before the details.
- ✓7m4.2The Income Statement, Top to BottomRevenue down to EBITDA - the handful of P&L lines a DCF actually cares about, and what each one means.
- ✓7m4.3Projecting Revenue, Margins & DriversGood forecasts come from drivers - units × price, margin trends, % of revenue - not from a blind growth rate.
- ✓5m4.4Reading History: LTM MechanicsLast-twelve-months figures let you measure a company's most recent year even mid-fiscal-year. The formula is a simple stitch.
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54
Unlevered Free Cash Flow
The cash flow you actually discount - how to build it, and the working-capital mechanics that trip everyone up.
- ✓6m5.1Unlevered vs. Levered Free Cash FlowUFCF is cash to all investors and pairs with WACC → enterprise value. LFCF is cash to equity and pairs with cost of equity → equity value.
- ✓8m5.2Building UFCF, Line by LineTax-affect EBIT, add back D&A, subtract CapEx, then adjust for the change in working capital. Five lines, one number.
- ✓7m5.3Net Working CapitalNWC is the cash tied up in day-to-day operations. Increases consume cash; decreases free it. This is the most-missed line in UFCF.
- ✓6m5.4Projecting Working CapitalForecast NWC with days-ratios (DSO, DIH, DPO) or a quick % of sales. The ratios reveal how efficiently a company runs.
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63
Terminal Value
The biggest, most assumption-sensitive number in the model - two ways to compute it and how to keep each honest.
- ✓5m6.1Why Terminal Value ExistsYou can't forecast forever. Terminal value captures all cash flows after the explicit period, assuming the business has reached steady state.
- ✓8m6.2The Perpetuity Growth MethodGrow the final cash flow at a modest perpetual rate, then apply Gordon Growth. The rate should be GDP-like - 2–4%.
- ✓7m6.3Exit Multiple Method & Cross-ChecksValue the terminal year at a market multiple of EBITDA, then cross-check it against the implied growth rate - and vice versa.
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74
WACC & Discounting
The discount rate, decoded - cost of equity via CAPM, cost of debt, beta, and how they blend into WACC.
- ✓6m7.1WACC: The Blended Cost of CapitalWACC is the return all investors collectively demand, weighted by how much capital each provides. It's the rate that discounts UFCF.
- ✓7m7.2CAPM & the Cost of EquityThe cost of equity is the risk-free rate plus beta times the market risk premium. Riskier stock, higher demanded return.
- ✓7m7.3Beta: Levered and UnleveredBeta measures market sensitivity. To compare companies' business risk you strip out leverage (unlever), then re-lever to your target structure.
- ✓6m7.4Assembling WACC End to EndWith cost of equity, cost of debt, weights, and tax in hand, WACC is one line. Watch it drive the entire valuation.
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83
From Enterprise Value to Share Price
Bridge EV to equity value with net debt, then divide by fully diluted shares - counted properly.
- ✓6m8.1The Net Debt BridgeYour DCF produced enterprise value. Subtract net debt (and preferred/NCI) to reach equity value, then divide by shares for a price.
- ✓8m8.2Fully Diluted Shares & the Treasury Stock MethodOptions and warrants add shares - but the cash raised buys some back. The Treasury Stock Method nets the two.
- ✓7m8.3Convertibles & Other DilutionConvertible debt and preferred can become shares too. The If-Converted and Net Share Settlement methods size the dilution.
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92
Capstone - Valuing Nike
Every concept in one real model: project, discount, terminalize, bridge - then watch how assumptions bend the answer.
- ✓9m9.1The Full Nike DCFA start-to-finish unlevered DCF on Nike: five years of UFCF, an 8.3% WACC, a perpetuity terminal value, and an implied share price.
- ✓7m9.2Sensitivity & 'Massaging the Numbers'Change two defensible assumptions and Nike flips from 24% overvalued to 35% undervalued. The cautionary heart of DCF.
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