SSE/EFI Working Paper Series in Business Administration,
Stockholm School of Economics

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

55 pages, First version: June 18, 1998. Revised: December 13, 2011. Earlier revisions: June 22, 1999, March 7, 2001, July 9, 2001, August 26, 2002, August 26, 2002, February 20, 2006, August 25, 2006, February 1, 2007, September 29, 2008, February 28, 2010, December 2, 2010, December 1, 2010.

Full text files

hastba0001.mck.xls Excel file First worked example

hastba0001.mck_ext.xls Excel file Second worked example

hastba0001.pdf  Full text

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