Question 1

What is DCF analysis and how does it work?

Accepted Answer

DCF (Discounted Cash Flow) analysis values a company by projecting future free cash flows and discounting them to present value using WACC. It's considered one of the most rigorous valuation methods and is widely used in finance and investment banking.

Question 2

What is WACC and how do I calculate it?

Accepted Answer

WACC (Weighted Average Cost of Capital) is the average rate a company pays to finance its assets. It combines the cost of equity (via CAPM) and cost of debt, weighted by their proportions. Our calculator handles WACC calculation automatically.

Question 3

What is terminal value and how is it calculated?

Accepted Answer

Terminal value represents the company's value beyond the forecast period. It can be calculated using the Gordon Growth Model (perpetuity growth) or Exit Multiple Method (comparable company multiples). Both methods are available in our calculator.

Question 4

What is free cash flow?

Accepted Answer

Free cash flow is cash generated by operations minus capital expenditures. It represents cash available to investors (debt and equity holders) and is the foundation of DCF valuation. FCF = Operating Cash Flow - Capital Expenditures.

Question 5

How do I interpret DCF valuation results?

Accepted Answer

DCF provides an enterprise value estimate. Compare it to market value to identify over/undervaluation. Use sensitivity analysis to understand how assumptions affect valuation. Our calculator includes comprehensive scenario analysis and Monte Carlo simulation.

DCF Analysis

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