DCF WACC

The DCF – WACC method is the best-known Discounted Cash Flow (DCF) method. This approach determines the economic value in which the present value of the future cash flows that are expected to be generated by the company is calculated.

These free cash flows are discounted back to the valuation moment using the WACC, which is the weighted average of the required return on equity (Kel) and on debt capital (Kd).

The influence of financing with debt capital has been incorporated into the Wacc via the Kd because this cost of debt capital is after tax.

The operational enterprise value is equal to the present value of the future cash flows.

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