DCF Myths

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DCF Myth 1: If you have a D(discount rate) and a CF (cash flow), you have a DCF!

Consistency Tests for DCF

\[ \text{Value of Asset}= {sum_{y=1}^n{\frac {E(CF_y)} {(1+r)^y} }} \]

  1. Unit Consistency

    1. Equity vs Firm

    2. Pre-tax vs post-tax

    3. Norminal vs Real

    4. Currency

  2. Input consistency: valuation triangle

  3. Narrative consistency

Hall of shame

  1. Chimera

  2. Dreamstate

  3. Dissonant

  4. Trojan Horse (or Drag Queen)

  5. Kabuki of For-show

  6. Robo

  7. Mutant

DCF checklist

DCF Myth 2: A DCF is an exercise in modeling and number crunching!

Connecting Stories to Numbers: The Process

flowchart

Tie to the life cycle: The Investor Angle

Tie to the Life Cycle: Implications for managers

  1. Narrative control

  2. Narrative consistency

  3. Bar Mitzvah Moments

Reference:

DCF Myth 1: If you have a D(discount rate) and a CF (cash flow), you have a DCF! DCF Myth 2: A DCF is an exercise in modeling and number crunching!

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