Hi, are you able to explain the DCF terminal multiple? why use this over the terminal growth method? i am not familiar with the terminal multiple method, are you able to explain how to use it? maybe you can write an article about it?
1. Terminal multiple method relies on using a market multiple (P/E ratio, EV/EBITDA, etc.) based on comparable companies, while the terminal growth method assumes a constant growth rate in perpetuity.
2. In the terminal multiple method, we assume that the company will be valued similarly to comparable companies at the end of the forecast period. The terminal growth method assumes that the company's cash flows will grow at a stable and constant rate indefinitely.
It is two different approaches, I prefer terminal multiple as I feel it is more applicable to the real world. But I've heard good arguments for using both (and to reverse DCF analysis).
I try to be directionally right, instead of precisely wrong. Hence, I focus more on the qualitative side of the analysis, as I believe most people can plot in a DCF analysis in an excel sheet.
Thank you for your nice presentation of this new company for me. I must learn more about the used discounted cash flow analysis because there are some unclear numbers for me (terminal value in 2023). What does mean "in EUR" in the first column?
Disregard "in EUR", in this case it should stand "in USD", but not affecting the model.
Terminal value in 2023 is just the free cash flow and expected free cash flows in 2023, 2024, 2025 and so on, discounted at the discount rate provided (10%).
Thank you for your answer. I have made a mistake in my first question. I would like to ask you about Terminal Value 2032. I supposed that it is SUM of 2023-2032. But it seems that is the result of an other calculation.
Calculation of the cash flow growth and discounts by the years are clear to me now. Unfortunately I don´t understand how the terminal values are calculated. I appreciate an article on this subject if more readers are interested in. Thank you again for your good job. Have a nice day.
Hi, are you able to explain the DCF terminal multiple? why use this over the terminal growth method? i am not familiar with the terminal multiple method, are you able to explain how to use it? maybe you can write an article about it?
Can write about it in a future article.
The key differences are:
1. Terminal multiple method relies on using a market multiple (P/E ratio, EV/EBITDA, etc.) based on comparable companies, while the terminal growth method assumes a constant growth rate in perpetuity.
2. In the terminal multiple method, we assume that the company will be valued similarly to comparable companies at the end of the forecast period. The terminal growth method assumes that the company's cash flows will grow at a stable and constant rate indefinitely.
It is two different approaches, I prefer terminal multiple as I feel it is more applicable to the real world. But I've heard good arguments for using both (and to reverse DCF analysis).
I try to be directionally right, instead of precisely wrong. Hence, I focus more on the qualitative side of the analysis, as I believe most people can plot in a DCF analysis in an excel sheet.
Thank you for your nice presentation of this new company for me. I must learn more about the used discounted cash flow analysis because there are some unclear numbers for me (terminal value in 2023). What does mean "in EUR" in the first column?
Disregard "in EUR", in this case it should stand "in USD", but not affecting the model.
Terminal value in 2023 is just the free cash flow and expected free cash flows in 2023, 2024, 2025 and so on, discounted at the discount rate provided (10%).
Thank you for your answer. I have made a mistake in my first question. I would like to ask you about Terminal Value 2032. I supposed that it is SUM of 2023-2032. But it seems that is the result of an other calculation.
It is the cash flows in year 10 X the terminal multiple (Exit multiple)
The model then discounts it at the proper discount rate in the colum below.
The result in the blue cell is the sum of the cash flow for each year discounted, and the exit cash flow at the end of the period discounted.
Did that make sense? I can do a more in depth article on this subject, as it seems to be of interest
Calculation of the cash flow growth and discounts by the years are clear to me now. Unfortunately I don´t understand how the terminal values are calculated. I appreciate an article on this subject if more readers are interested in. Thank you again for your good job. Have a nice day.