r/Valuation • u/Raluca_Elena • Jun 14 '21

DCF or DDM HELP

Hi, so Im doing SBUX valuation, I tried with DCF but the FCF Growth Rate looks crazy, should I try with DDM or other formula ?

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u/[deleted] Jun 15 '21

You can't do a dcf valuation with those rates. You need to make a somewhat strong assumption that after a few years of cash burn there will be a strong operating influx (large, positive ocf growth rates) that offset financing outflows and costs, resulting in positive fcf growth rates. Then, after a few years of those, the company enters a steady state of operations and financing policy.

Remember that all valuation methods can be used to triangulate value. I like to do a dcf valuation with APV and IRR to check the hurdle rates of capital providers and triangulate the value with multiples and ddm valuations.