Discounting and value
The DCF: from enterprise value to value per share
Assemble the full valuation and bridge to what shareholders own.
25 minadvancedMembers
Learning objectives
- Discount forecast free cash flows and the terminal value
- Calculate enterprise value
- Bridge from enterprise value to equity value and value per share
Enterprise value (EV) is the value of the operating business to all capital providers: the present value of forecast FCF plus the present value of the terminal value.
Shareholders own what's left after lenders: in the simplest case, equity value = EV − net debt (debt minus cash). Divide by diluted shares for a value per share. The equity bridge lesson adds the other claims — leases, preferred shares, minority interests and associates.
EV = Σ FCFₜ ÷ (1 + WACC)ᵗ + TVₙ ÷ (1 + WACC)ⁿ
- t
- forecast years 1 … n
- TVₙ
- terminal value at the end of year n
Included with a Formula Quest membership
The rest of this lesson is for members. Members get the full lesson, including its 3 graded exercises, and every other Finance Quest lesson.