Introducing Intrinsic Valuation And Business Valuation |
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Intrinsic Valuation is about Forecasting Cash Flows from today to infinity and discounting back with the cost of capital one may expect, to obtain the Present Value. The Discounted Cash Flow (DCF) Model is used as a tool to compute tintrinsic value. These cash flows consist of two parts :
Cash Flows during the forecast period
Cash Flows post the forecast period (Terminal Period)
The value augmentation of a company occurs primarily during the forecast period. During the post-forecast period - also referred to as the Terminal Period - the assumption is that the company could be
The Free Cash flows will grow at the Terminal Growth Rate.
The Free Cash Flows will grow at the Inflation Rate.
The Free Cash Flows will remain constant.
The cash flows generated during these periods belong to Lenders (Debt) and Shareholders. The present value of these cash flows is called the Enterprise Value. The Enterprise Value less Debt will be called the Shareholder Value of the Company / Business |
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