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Constructing a business valuation using cash flow analysis

Constructing a business valuation using cash flow analysis - Microsoft Excel Tutorial

From the course: Excel for Accountants

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Constructing a business valuation using cash flow analysis

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- [Instructor] Making forecasts using Excel is an important skill, but we can also go one step deeper and create an associated business valuation using a discounted cash flow model. Excel is the standard for such models. I'm in the 04_03_Begin Excel file. Now we've made a series of assumptions about this particular company. We've got projected free cash flows over the next five years, as well as a projected discount rate based on the riskiness of the company, and a terminal growth rate that reflects the growth of the company from the year 2024 on. Now, in order to determine the value of this firm, we need to determine the present value of this sequence of cash flows. Importantly, we are assuming that the company has no extra cash on hand right now, so the value of the firm is solely going to be based on these free cash flows plus the terminal value. To determine the value of the firm, we're going to use the present value formula. That present value formula is going to take into…

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