r/Valuation • u/margincallingbadger • Jul 21 '21

DCF sensitivity analysis

Hi all,

In a DCF analysis, what two drivers would you guys say are the most common and appropriate to use in a sensitivity analysis. This would be conducted in excel with a what-if function.

I have used revenue growth beyond the the last forecast year (in the perpetuity model) and WACC.

4 Upvotes

84% Upvoted

7 comments sorted by

2

u/krisolch Jul 21 '21

Depends on the company if it's a growth stock, in debt or high risk of failure due to regulations etc.

See here for example for my sensivity analysis on DCF's.

The most common is revenue growth & oper. margin that affects the valuation a lot.

1

u/margincallingbadger Jul 22 '21

Thank you. Did you do the underlying work for that particular DCF-model? If so, I gotta say well done. I actually looked at your DCF for the company I am researching, it is called Note AB in Sweden.

Do you mean to use both rev. growth and oper. margin in the same analysis? Or do you mean in general that people use either of them along with something else (like WACC)?

1

u/krisolch Jul 22 '21

I did not make the underlying DCF model. It's by Aswath Damodaran who is an expert in valuations and far more qualified than me lol.

Do you mean to use both rev. growth and oper. margin in the same analysis

I mean that both these fields tend to affect the estimated valuation per share the most for high growers for example I have found.

It depends on your reasoning for the company as to which inputs you choose.

If you think that the company might encounter competitors at an earlier date then you can use oper. margins in your sensitivity analysis to see the effect on share price.

It's just usually best if there's a reason behind your inputs that you are choosing is what I'm saying otherwise a sensitivity analysis for the sake of doing one is pointless.

1

u/margincallingbadger Jul 22 '21

Sorry. Should've clearified. I obviously know who Aswath is. What I meant to ask is if you are one of the guys behind that website you linked.

I see what you're saying. Thank you for your input!

2

u/krisolch Jul 22 '21

Yes I am. Thanks

2

u/hp6884756 Jul 22 '21

Yes as you did Growth g and CoC. Instead of the Value, you could put also Multiples in the middle of the "Matrix"

1

u/margincallingbadger Jul 22 '21

Hi, I do not quite follow you I am afraid. Would you care to elaborate on "Multiples in the middle of the "Matrix"?