SSE/EFI Working Paper Series in Business Administration
L. Peter Jennergren
A Tutorial on the Discounted Cash Flow Model for Valuation of Companies
Abstract: All steps of the discounted cash flow model are outlined.
Essential steps are: calculation of free cash flow, forecasting of future
accounting data (income statements and balance sheets), and discounting of
free cash flow. There is particular emphasis on forecasting those balance
sheet items which relate to Property, Plant, and Equipment. There is an
exemplifying valuation included (of a company called McKay), as an
illustration. A number of other valuation models (abnormal earnings,
adjusted present value, economic value added, and discounted dividends) are
also discussed. Earlier versions of this working paper were entitled "A
Tutorial on the McKinsey Model for Valuation of Companies".
Keywords: Valuation; free cash flow; discounting; accounting data; (follow links to similar papers)
55 pages, June 18, 1998, Revised December 13, 2011
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hastba0001.mck.xls First worked example, Excel file
hastba0001.mck_ext.xls Second worked example, Excel file
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