Quantitative Valuation

Core Concepts

Discounted Cash Flow (DCF)

The DCF model values a company as the present value of its future free cash flows plus a terminal value:

V = Σ FCF_t / (1 + WACC)^t + TV / (1 + WACC)^n

where FCF_t is the free cash flow in year t, WACC is the weighted average cost of capital, and TV is the terminal value at the end of the explicit forecast period.

Terminal Value — Gordon Growth Model

Estimates the value of all cash flows beyond the explicit forecast period assuming perpetual growth:

TV = FCF_n × (1 + g) / (WACC - g)

where g is the long-term sustainable growth rate (typically near nominal GDP growth, 2-4%).