DCF APV

The APV method is a variant of the Discounted Cash Flow (DCF) method. This approach is based on economic valuation in which the present value is calculated of the future cash flows that are expected to be generated by the company.

These free cash flows are discounted to the valuation moment using the Keu (Cost of equity 'unlevered'), as if the company were fully financed with equity.

The influence of debt financing is calculated separately within the APV method. Interest payable reduces the result before tax. A company with interest-bearing debt will therefore pay less tax than if the same company is fully financed with equity. The tax shield is the present value of the tax benefit on the interest payable.

The operational enterprise value is equal to the present value of the future cash flows (including the continuing value) and the tax shield.

To arrive at the economic value of the equity, the excess liquid assets and the market value of non-operating assets are added to the value, and the market value of the debt is deducted.

This valuation method is one of the 6 valuation methods in the Valid Value model