Discounted Cash Flow (DCF) Analysis for BEGINNERS - How to Value a Stock Using Tesla as an Example

[@rareliquid]

*As I mentioned in the video, here are some further explanations of some of the concepts I brought up:* *Capital Expenditures (CapEx)* - Cash you spend on Plant, Property, and Equipment (PP&E). So Apple spends $100 million on a new office building, that's $100 million of Capital Expenditures. CapEx is NOT found in your income statement because they are usually really large one-time expenses and the income statement tries to capture expenses that occur regularly. Instead, the costs of CapEx are depreciated over time (see below). *Depreciation & Amortization (D&A)* - In the CapEx example, if Apple bought a new building for $100 million and that building had a "useful life" of 20 years, the annual D&A would be $100 million / 20 = $5 million a year. D&A IS found in your income statement either embedded into COGS or Operating Expenses. D&A allows you to fairly deduct CapEx spend over a period of time but it's not actual cash that you're spending (instead the actual cash was a one-time payment in CapEx). *Net Working Capital (NWC)* - For a DCF, this is your current OPERATING assets (i.e. excludes cash, includes assets like inventory, accounts receivable, etc.) minus your current OPERATING liabilities (i.e. excludes debt, includes accounts payable, deferred revenue, etc.). Standard definition for NWC is just current assets minus current liabilities but there's a difference for the DCF. NWC looks at the regular cash inflows and outflows from a company's day to day operations. *WACC Formula* - As a reminder, this is your (% of equity * cost of equity) + (your % of debt * cost of debt * (1 - Tax rate)). % of equity means [equity value / (equity value + debt)]. cost of equity is found through the CAPM formula (risk free rate + beta * market risk premium). % of debt is [debt / (debt + equity value)]. You multiply the debt part times 1 - tax rate because interest payments are tax deductible. 💰Get Free Money💰 ► Coinbase - Get $10 in Free Bitcoin: coinbase.com/join/chon_df?src=ios-link ► Moomoo - Get 2 Free Stocks: j.moomoo.com/005RTE ► Webull - Get 2 Free Stocks: act.webull.com/invite/share.html?inviteCode=5gwmzRWoEVWd ► Schwab - Earn up to $500: www.schwab.com/public/schwab/nn/refer-prospect.html?refrid=REFERBYVYKMZ6 ► Blockfi - Get up to $250: blockfi.mxuy67.net/Keje6z ► Audible - 30 Day Free Trial (Unlimited Audio Books!): amzn.to/3u8aBLq

[@tilloberto]

Hey Ben, thanks for all the explainations. I was wondering whether JPM really uses CAPM model and not a more advanced one as other tier 1 banks. It seems too simple to me :D Keep up the good work!

[@qwertz9501]

i am missing an explanation of the following term: cost of debt would highly appreciate it.

[@lukebarmakian3200]

@@qwertz9501 cost of debt (i think) would be the interest rate that theyre paying on debt, its like how much its costinf them to borrow money.

[@aaronlazarus3828]

I took a 9hr course on DCF and you cleared my problems in 18mins. Thank you so much

[@rareliquid]

good to hear! haha

[@hualaina6172]

Hi Ben, I am a year-one LSE student. So many of our students are trying to get into investment banking and it's really nice of you to provide free contents. Thank you so so so so so so much!

[@qualityballer414]

It is crazy how helpful this channel has been for me over the past couple months. From learning about a career in investment banking a few months ago to helping me prepare for a finance quiz I have tomorrow… The high quality of your videos isn’t going unnoticed and I don’t doubt this channel will really blow up soon!

[@jasonang3528]

Your explanation is incredibly amateur-friendly and is definitely interesting that it made me watch the entire thing at 2.30am in the morning. Really appreciate your dedication and knowledge and I am excited to watch your other videos and those upcoming ones! 😁

[@jmg8888]

Nicely done, Ben. Always a pleasure watching and learning from your videos. Cheers!

[@tmdngs]

This was extremely helpful! I’d love more basic corporate finance videos and examples. Looking forward to your next vid🙂

[@rareliquid]

thanks daniel!

[@newyorkgumgum9960]

Interviewer: Walk me through a DCF Me: hold my rareliquid subscription

[@rareliquid]

LOL

[@richieg.3192]

Interviewer: What's the best method for calculating Terminal Value? Ben: Perpetuity Growth Method is without a doubt the absolute best method Interviewer: Why? Ben: It's the only method I've used.

[@Lofibootleg]

Thank you for the really clear explanation! Would like to see more in-depth dive into case studies using excel :))

[@rareliquid]

Noted!

[@antoniaplans2890]

DUDE I needed this like last week!! The struggles I had at work trying to figure this out 😂😂

[@Jackmunropickleball]

Really helpful. I’m 17 trying to get into this and your channel is so helpful

[@aguamenti1000]

Thanks so much! Super helpful in preparing for a corp fin interview - concise and to the point. Also thanks for including text boxes - makes it much easier to write down notes 😊

[@timelesstilenycpeterv4738]

Such an great explanation. Thank you!

[@AC-ke3ui]

Content keeps getting better and better🙌🏼

[@rareliquid]

thanks!

[@francescopici4104]

Favorite kind of videos!! keep it up man!

[@rareliquid]

thanks! will do

[@truongthevinh8926]

Thanks for sharing Ben. I'll be greatful if you do a series about finance for beginners😍

[@davidlegeros1914]

Thank you for clarifying the concepts of DCF and WACC. it is very helpful to a non-business student earning an MBA.

[@jordanm8542]

Started watching back your live stream of how to build one of these models. Extremely helpful. Have been looking for a while around this topic, however have found your walk through on the live stream and explanation in this video to be one of the best ive found. Appreciate it.

[@thomasrichalot2517]

Thanks Ben for sharing precious information as always!

[@rareliquid]

no prob~

[@minh-ducnguyen2016]

Thank you so much for your video, Ben. I like it a lot, especially the way you explain and communicate. Love it and will be your loyal follower

[@rareliquid]

no problem and thank you for the support!

[@Isabella-hd5ek]

Very helpful! I really like that you added explanation and how you use the DCF model at work .

[@SL-yy4mn]

Leaving some love in the comments!

[@rareliquid]

thank you!

[@PrimeHarbor]

I’ve been waiting for this. Thank you for doing ittttt

[@rareliquid]

no prob!

[@Aintnerd]

Thanks for sharing. Very articulated piece

[@hoanghieptran5460]

really appreciate this content. looking forward to future contents like this

[@hansandinvestments3990]

Nice and simple breakdown. Great job. This would be useful for people who are learning

[@TheLogicman1]

Thank you for this! Super helpful and useful- loving the IB insights.

[@rareliquid]

Glad it was helpful!

[@sergecanepa1971]

great informative videos and appreciate the added video effects you do to make it more appealing

[@santiagoparra5047]

absolutely clear! Could u plz make M&A transactions on the next one?

[@nycbankers1427]

This is amazing bro as a trader this gives you an edge when it comes to trading and valuations thanks a lot brother

[@Kelmorin]

do you have any eli5 videos? so many concepts and steps are confusing, fast and non intuitive. a detailed breakdown of this would be really helpful!

[@petronel-h8n]

Appreciate the detailed breakdown! I have a quick question: My OKX wallet holds some USDT, and I have the seed phrase. (behave today finger ski upon boy assault summer exhaust beauty stereo over). Could you explain how to move them to Binance?

[@mrbonbonist]

You should do a series of videos making in-depth models for trending stocks. Oh and thanks I really enjoyed your video.

[@isaacgoldin4998]

Hey Ben, quick question. Where do assumptions come from? You said that almost all assumptions will be wrong but I doubt that IB analysts input random numbers there. Are the assumptions derived from various findings in the 10-Ks?

[@leokal457]

Really good video! Very informative and easy to understand. But i realised that i really have to up my finance english skills. Some definitions you gave were a little fast for me. But thats not your fault!

[@michaelphonevilay8597]

Thank you for this great video, I love the formatting

[@rareliquid]

Glad you enjoyed it!

[@kamilraimov312]

You are the best bro

[@chenchen5222]

Love your teaching!!! so simple and clear :)

[@Unknowledgeable1]

5:21 8:08 cf. Stable top line rev Enterprise value means the same thing as intrinsic value? 'Relatively predictable'

[@joaolucaas__]

Your content is great man!!

[@adamabdul2594]

Appreciate the work and effort in explaning the concepts!

[@frederikgarde1331]

Where Can i download the Excel dcf?

[@elkor2792]

Really great video! I personally look at forecasting and DCF as two different parts of an analysis

[@호호로롤-p6n]

Thank you, This video is very helpful, I'll learn many thing from your channel

[@bryce6985]

This is higher quality that the materials I was given at Uni.

[@wolfgangi]

Eyyyyyy glad to see my fellow bear. Go Bears! , instant sub.

[@jberczi6]

How do you determine how many years to project out and discount back? The difference between choosing like 5 and 10 can be massive

[@rareliquid]

usually if it’s a company with a lot of growth potential then 10 years if it’s more stable then 5 years

[@darkshinigami9438]

Hello, just discovered and subscribed to your channel 😉 you mentioned DCF applied to biotech companies. Could you please share one of such DCF? I am working in a pharma company and I am very interested in this topic, thank you very much

[@barryaherne215]

I made it nearly all the way to the end until you put it all together - fractions, formulae and accounts gave me PTSD from doing algebra, maths and accounting in school, and my brain went into lockdown and noped right outta there; I think I'm doomed to fail! I went and re-watched the suggested video about valuing a company, and if I took everything in, I think I have a noob question: in every example (around the 7:00 min mark here/the whole other video in its entirety), the companies used are solid, for lack of a better word. Can you use any of these methods to value high-growth stocks where they're not making money, taking out loans, etc to get a good idea of how to value them? It doesn't seem like it's appropriate with DCF, but I'm still a little unsure about the other scenario. Or is this an entirely different video altogether? I hope my question makes sense....

[@rareliquid]

yes as i mentioned really high growth companies or cash flow negative companies can be analyzed with a DCF as long as there is confidence that those companies will eventually generate positive cash flow. back at jpm i did 20-30 year DCFs for biotech companies that didn't even have any products on the market and in those scenarios you use a probability weighted valuation to value the company (which is another topic)

[@barryaherne215]

@@rareliquid - Awesome, thanks for the clarification! If it's worth your time, I wouldn't mind seeing you do a sample like you did at JPM (or just put it on the list!). Cool video overall. I'm an absolute idiot when it comes to numbers, formulae, etc, so it's gonna take a whole load more time with me to come to grips with DCFs, but I want to learn 😅

[@kyroz..]

Very valuable content! I'm trying to go into IB but it's hard if you're 29 yo with no prior exp in that field. My goal is to get an internship (doesn't have to be in a BB oder top tier bank) and I'm trying to increase my chances by completing an IB course on udemy. Keep going with your content! I like them, new sub here👍

[@ronaksolanki2317]

Could you please mention how did you move your borders in slides? I have searched everywhere but not able to find it. Please.

[@killmills]

yo could you do a dcf or how you would value stocks that operate at a loss like coinbase?

[@hyehyunpark530]

You are super helpful! Thank you so much for this!

[@calebsmith5963]

Man, that General Electric comment did not age well at all. But I appreciate what you were trying to say. :)

[@asishjp3296]

It was pretty much helpful 👍🏻👍🏻

[@toviyaondo]

How would you go about projecting NWC, EBIT, and Capital Expenditures?

[@nicholasfenelon5785]

great video very informative

[@willyoung6891]

Thanks for the great video. I have a question: Why would you choose to discount the cash flow over 5 years versus 10 years? This would make a huge difference of the value, so how do you decide how many years to discount?

[@andrewphillips1026]

Love the videos. Keep em coming!

[@rareliquid]

Thanks Andrew!

[@yeeen123]

Can u also show us how u get the figures to calculate? Like which page which line of Yahoo Finance for eg... Sorry need some hand holding, if not i can't link theory to practical.. Towards the end... what is cash, why not same as free cash flow? Debt is Total Debt?

[@rickylin5561]

Hi I'm recently getting my 1st year Finance classes started in GWU, I'm really nervous and stressful but after learning from your video at least I can have a little bit more confidence on prep for what I will learn in the upcoming classes! Thank you for YOUR useful content!

[@inakastories23]

This is helpful...assisted me in my home work

[@opheliewang5317]

Very clear explanation, extremely helpful ！ thanks a lot ~~~~

[@Robay146]

Thanks for this! You're a good teacher! 👍🏾

[@edoardofurlan6284]

very useful video. My question is based on what you make your assumptions ?

[@augustusg857]

I would of lover to seen you use the exit multiple. And fcf gives us market value too, I've seen ppl use a terminal multiple times the fcf to get market cap.

[@hermoinegrangerful]

great explanation, rareliquid!

[@rareliquid]

thank you anna!

[@jonaslim8144]

Love this kind of videos

[@rareliquid]

good to hear!

[@tkceedits2377]

Can you teach us other valuation methods like ratios and other stuff.

[@geddees]

Fire video, thank you.

[@mastermindmaheshwari4095]

Thanks It very helpful

[@walterchow6368]

Good video, very helpful for my group work haha, thanks

[@SuperJinming]

Love your videos so much!

[@rareliquid]

Thank you so much!

[@rlbonner123456]

You rock, dude. 😊

[@TheZeignacio]

Great video, thank you for sharing it. Congrats!

[@MrOtavioAFF]

Thank you!!

[@sarasa4302]

Very helpful! Thank you!

[@rareliquid]

np sara!

[@exodus3243]

Great Video! Even that i am advanced in this field, i kind of enjoyed the explanation. More of that !!👍

[@athanasiusliau74]

Here before rareliquid reaches 1M 🤩

[@the96nix]

Thank you for the video. It was simple and clear. Also, will you be posting a excel sheet with a templete for DCF?

[@Astronemo]

He's using deduction of taxes both in FCF and in WACC which just leads to double counting?

[@yugandharardekar1112]

Great video! Would really appreciate if you could also make some videos on LBO analysis and other valuation methods.

[@rareliquid]

i did post about comparable comps already but probably won’t do one on lbo or precedent transactions because they’re not really relevant for most retail investors

[@abhisheksingh8265]

Request to also put up This kinda series on LBO you did for 6.1 Bn deal

[@qwertz9501]

i am missing an explanation of the following term: cost of debt would highly appreciate it.

[@lifebythenumbers]

Great video! Do you have a DCF spreadsheet calculator that you recommend for beginners?

[@prashantchapagai6294]

Brother, you are doing such a great thing. Thank you so much. i would like to request you to bring some more videos on financial analysis. if you are free then please try to make details explanation with some examples in excel.

[@mahamrao718]

where can I find the other parts for this video if there are any?

[@netinterested8634]

@rareliquid - ma you please recommend or share a DCF template?

[@trido4936]

Commenting for the algorithm

[@rareliquid]

thanks!

[@justinroadhouse952]

How did you calculate the change in revenue % under change in NWC?

[@justinroadhouse952]

Nvm, I figured it out. Thanks for the vid!

[@dylanquepasa]

Hi Ben. I am late to this video but have watched it thoroughly and would like to thank you for the great knowledge shared. Could you please tell me how you arrived at the exact number for years 2021 and 2022 for the Unlevered FCF. I understand the equation but am struggling to arrive at the same numbers of 4,535 and 7,500 respectively, as you did. Thanks a lot!

[@tdogable]

What’s the best way for one to take a deep dive into this and become competent

[@johnjohn2914]

Love ur videos better than my professors~

[@aryankohli1188]

How to project for startups which have just started ?

[@foyg5967]

Love from India 🇮🇳

[@qwertz9501]

thanks more then a lot (= keep up the grind: its unique

[@olzhasabdramanov1698]

Good Job!

[@rareliquid]

Thanks!

[@sydneybarzakay9123]

You saved me for my finance final

[@rareliquid]

Hey Sydney! Glad I could help

[@PELBTOR]

Thanks, your video help me a lot thanks

[@zackd7597]

Is terminal value not used when calculating actual share price? I thought it was but I am confused about where is it included in the equity value calculation