0

I'm calculating an enterprise value with the DCF analysis. In DCF I consider revenues - costs, and I also discount reinvestments. These reinvestments are to get more capital. How can I take into account this capital?

1 Answer 1

2

DCF = 'discounted cash flow'. so, you build a model that has (cash) revenues minus (cash) expenses. It doesn't matter if the expenses (outflows) are for supplies, labor, or reinvestment of capital. In the end you get a net cash flow (including all cash costs), and you project that forward. Then discount it back to today.

4
  • What do you mean by project forward ?
    – ApplePie
    Jun 17, 2018 at 23:19
  • You make an estimate for this year, then for next, then the following, etc., until you have enough. Then you discount those cash flows to today and add them - hence Discounted Cash Flow analysis (DCF).
    – eSurfsnake
    Jun 18, 2018 at 1:22
  • Yes, I know the steps to calculate the cash flow, buy I wonder what is happening with that re-investments you talk about. For example, if at some year the company invest in a building, the cash flow is going to be lower that year. More expensive the building, more negative that cash flow, and sow the EV lower and lower. And we are never taking into account that the company owns a building. Jun 18, 2018 at 13:10
  • 1
    Yes you are, in the final year. You are going to need to make some assumption about what the company would be worth, in aggregate, in some terminal year - say year 20. But your intuition is right. if a company had chunky outlays that don't depreciate (a building or land might fit the bill) you might just leave that out of cashflow and final valuation. But, for example, machinery with a 10 year life or office furniture with a 5 year life gets counted, because you expect to @"sell" the business in 20 years with that stuff to get full value.
    – eSurfsnake
    Jun 18, 2018 at 17:01

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .