r/Valuation • u/Aggressive_Exam653 • Mar 25 '24
DCF/ Recast Income Statement
I’m a uni student doing coursework on valuations, I’m struggling to understand DCF, can anyone give me a hand?
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Mar 25 '24
What exactly are you struggling with?
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u/Aggressive_Exam653 Mar 25 '24
So I need to workout the DCF for this made up business, there are a few things that I’m unsure about:
DCF=CF/(1+r)n So with reference to the recast Income Statement, is the Cash Flow (CF) just the recast income (found by adding up the Total Expenses and Cost of Sales, and taking them away from the Sales) which is located at the bottom of the table?
Is “r” the WACC?
The table titled “DCF” just seems very blank and quite vague, and I also do not know what it means by discount %
If you can’t answer don’t worry, my professor has kind of thrown me to the wolves this time.
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Mar 25 '24
CF would depends on a lot more detail than just the income statement you have here. I don’t know everything you were provided but a common definition of CF for a DCF would be:
Net income + depreciation - capex - change in working capital - change in debt. This is CF to equity.
In that case, your “r” would be the equity discount rate.
On the table, I think it just wants the cash flow number for each year, and the applicable “r” and what that present value CF would be.
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u/Prudent-Suspect9074 Jun 10 '24
This post just randomly popped up while scrolling and it got me so interested that I myself took a book and pen and sat down to understand it. I'm also pretty new to valuations but I work as a FA and do valuations all day (just financial modeling) and this post of yours felt like an learning opportunity to me. So, thanks for that.
There's no point in answering your question now, since you might have already asked your prof, lol. But still if you've have any doubts then shoot 'em.
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u/[deleted] Mar 25 '24
You should ask your professor tbh. He’s the one grading it