The Discounted Cash Flow model is a staple in any valuation
tool kit. While these tend to vary from model to model depending on the user’s specific
needs, there are a few common aspects. A DCF generally includes as assumptions
section that is used to model the forecasted pro-forma financials. It is also
common to include a sensitivity analysis for certain key metrics; these are
Weighted Average Cost of Capital (WACC) and Discount Rate for most DCF models. Despite
difference between models, at heart all DCFs are intended to estimate intrinsic
value of an asset based on expected future cash flows discounted to present
value.
To help me gain a better understanding of DCF models and to
improve my Excel skills, I started with a blank spread sheet and went to work.
I used sample DCF models that I have seen elsewhere for some of the formatting
ideas, however I did fully create every aspect of this model.
At this time, I am simply going to post the model for
review. However, I do plan to have future posts that explain specific parts of
this model. As a note, I used rough inputs for Microsoft to help better demonstrate the functionality of the model; however, there was no rigor put into the assumptions, they are
for illustrative purposes only.
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