A Tool Kit for Discounted Cash Flow Valuation: Consistent and Inconsistent Ways to Value Risky Cash Flows
18 Pages Posted: 1 Mar 2018
Date Written: January 1, 2017
The DCF method or multiples are used to value companies in practice. Starting with the value additivity principle, the paper presents a general framework for DCF valuation. This framework allows defining stepwise and aggregated approaches to value risky cash flows and identifying inconsistent approaches. The framework helps to integrate sales, contribution margin, operating leverage, and financial leverage into valuation approaches and shows the assumptions implied when multiples are used.
Keywords: DCF Valuation, Cost of Capital
JEL Classification: G31, G32, G34
Suggested Citation: Suggested Citation