Business valuation (DCF)
Value a business from entered free cash flows to the firm (FCFF).
What the figures mean
- Business valuation from future cash flows (DCF)
Future cash flows are valued today. This model separately includes cash flows after the forecast and adjusts for debt when estimating owners’ equity value.
Simple example: A €1,000 flow in one year at 10% is worth about €909.09 today. This values one flow, not the whole business.
- Free cash flow for the whole business (FCFF)
Operating cash after tax, required investment and working-capital changes, before distribution to lenders and owners. It is not just the cash left for shareholders.
Simple example: €1,000 of after-tax operating cash less €300 required investment leaves €700 if working capital is unchanged.
- Valuing future money today
A future amount is reduced using the chosen required return to compare it with money today. This is discounting, not a shop discount or solely an inflation adjustment.
Simple example: €110 in one year at a 10% rate corresponds to €100 today.
- Value of cash flows after the forecast
An estimate of money the business generates after the last explicitly forecast year. It is separately valued today and is not necessarily a sale price.
Simple example: After five detailed forecast years, later cash flows are estimated without counting year five again.
- Owners’ equity
In company accounts, assets less liabilities. In a property investment, your initial equity is your own money; the estimated value of your stake can differ from that amount.
Simple example: Company assets of €100,000 less €60,000 liabilities leave €40,000 of book equity.