Discounted cash-flow valuation: from theory to practice
Brezas, Nikolaos (2022)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2022120426266
https://urn.fi/URN:NBN:fi:amk-2022120426266
Tiivistelmä
This Bachelor’s thesis presents the theoretical framework for conducting discounted cashflow valuation and provides insight as well as compares theoretical valuation concepts to the real business models for conducting discounted cash-flow valuation. This research additionally investigates what the valuation tools used by experts are, and how they are applied.
Discounted cash-flow valuation is a complex subject whose application in the business world can vary from the theoretical concepts, as such the results of this thesis can be key for valuation students who wish to learn more about valuation in practice, or experts wishing to learn more about industry practices.
This research, having established the key theoretical framework of discounted cash-flow valuation, provides an examination of the practical approaches of different valuation experts. This paper is a mono method qualitative research, whose data was collected by conducting qualitative interviews.
There are different approaches and alternatives to applying discounted cash-flow valuation, but generally the process is as such: The underlying assets’ earnings and expenses are forecasted for an explicit number of years, then an appropriate discount rate is estimated to discount future cash-flows into a present value and the terminal value of the asset is estimated.
Having interviewed the research participants and analyzed their comments, this research concluded that the valuation approach of experts can vary significantly depending on whether the valuation is conducted for a buyer or a seller. The most key denominator amongst participants, are the difficulties in establishing common baselines for conducting valuation as part of a large team. Amongst the various alternatives for estimating the variables in a valuation, experts always attempt to use the ones that best reflect the market. Such methods may vary substantially from what is established in theory. MS Excel was found to dominantly be the most used valuation tool, with some tools reportedly being usedin addition for estimating specific variables.
Discounted cash-flow valuation is a complex subject whose application in the business world can vary from the theoretical concepts, as such the results of this thesis can be key for valuation students who wish to learn more about valuation in practice, or experts wishing to learn more about industry practices.
This research, having established the key theoretical framework of discounted cash-flow valuation, provides an examination of the practical approaches of different valuation experts. This paper is a mono method qualitative research, whose data was collected by conducting qualitative interviews.
There are different approaches and alternatives to applying discounted cash-flow valuation, but generally the process is as such: The underlying assets’ earnings and expenses are forecasted for an explicit number of years, then an appropriate discount rate is estimated to discount future cash-flows into a present value and the terminal value of the asset is estimated.
Having interviewed the research participants and analyzed their comments, this research concluded that the valuation approach of experts can vary significantly depending on whether the valuation is conducted for a buyer or a seller. The most key denominator amongst participants, are the difficulties in establishing common baselines for conducting valuation as part of a large team. Amongst the various alternatives for estimating the variables in a valuation, experts always attempt to use the ones that best reflect the market. Such methods may vary substantially from what is established in theory. MS Excel was found to dominantly be the most used valuation tool, with some tools reportedly being usedin addition for estimating specific variables.