How to Build a Discounted Cash Flow (DCF) | Step-By-Step Guide From Ex-JP Morgan Investment Banker

In this video, I provide a step by step guide on how to build a Discounted Cash Flow (DCF) model.
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⏱Timestamps⏱
0:00 - Introduction
1:28 - Alto IRA
3:01 - What is a DCF?
4:12 - The 5 Steps of a DCF
4:36 - Step 1 - Projecting Free Cash Flow
12:51 - Step 2 - Calculating WACC
19:34 - Step 3 - Calculating Terminal Value
23:13 - Step 4 - Discounting back to Present Value
24:16 - Step 5 - Calculating Implied Share Price
27:00 - Advanced Topics
🔎Disclaimer🔎
All content in this video is for entertainment purposes only. I am not a professional financial advisor and my statements are not to be taken as instructions or directions. In addition, some of the links above are affiliate links, meaning that at no additional cost to you, I may earn a commission if you click through and make a purchase.
#dcf #valuation #stocks

[@rareliquid]

⭐ Alto IRA⭐ ► Open a crypto IRA & Get $50 for FREE: altoira.grsm.io/rareliquid 👇Download the Templates👇 ► www.dropbox.com/sh/vco01w7g626tc61/AACSqicz-YQUid0RoDPEo8m6a?dl=0 🚀Sign up for my Courses🚀 ► How to get into investment banking: forms.gle/wt4cZrezbxVgNzGUA ► How to get into MBA programs: forms.gle/9yEyycuP7NnQBjue8 ► How to research crypto: forms.gle/fvzTKu13pBgPnBMA9

[@cepochukwu]

is EBIAT the same as NOPAT?

[@mattiovino3752]

Love these follow along videos. Find them very helpful for learning the basics

[@julian5094]

I just want to say thanks for this video. Couldn’t find much on a step by step tutorial DCF. 🙏🏽🚀

[@ecccc758]

Clean workbook formatting, easy to follow PPT's, and step-by-step instructions. FANTASTIC instruction methodology, thanks for the informative content!

[@yannbeko]

Those video are so cool ! Complicated to traduce everything from english to french but it makes me step up. Every step count when you have an objectives

[@danielmaher7781]

Great video and explanation. FYI you can make your Ticker a 'Stock' Data Type in excel which gives you access to some useful info like market cap, beta, share price etc so you don't need to keep updating manually. Worth giving it a try :)

[@AJRMediaAgency]

Ofc you have more than 100k subscribers, you are sharing a wealth of knowledge here!

[@roydavis1417]

Your insights on operating assets and operating liabilities. Your insights into years used to project and even mentioning using 20-30 years at JPMorgan. Also really breaking down the information you value worth projecting or using. All very useful, thank you. This was without a doubt your best DCF video yet. It was explained very well. I was interested in the concept of years used forward, cause really all we're doing is trying to predict a future market cap in todays value. I also realized the market can move rather quickly, so a long projection isn't always going to be the case, it's just simply a way for the calculation to give us a fair idea if we weight it with those years. However with the recession coming those years will likely matter (lol).

[@rareliquid]

thanks so much for the nice comment!

[@Prosnipezzzz1]

Ben your literally a gem appreciate all work!!

[@cameronrobin_]

This video has been unbelievably helpful! Thanks so much! :)

[@lorenzo4103]

hey Ben, nice video! Would like to see LBOs and Power Point presentation you did at JPM. Ould you do a video about that?

[@rareliquid]

both of these will be coming soon!

[@joshuaalfred8307]

5 minutes in. Subscribed. I could immediately tell content is legit. Looking forward to your in-depth video explaining DCF. Everyone else covers a dumbed down DCF, but I want to understand it like the professionals do.

[@elyfal6586]

Great video, mate. Very well simplified :)

[@rareliquid]

⏱Timestamps⏱ 0:00 - Introduction 1:28 - Alto IRA 3:01 - What is a DCF? 4:12 - The 5 Steps of a DCF 4:36 - Step 1 - Projecting Free Cash Flow 12:51 - Step 2 - Calculating WACC 19:34 - Step 3 - Calculating Terminal Value 23:13 - Step 4 - Discounting back to Present Value 24:16 - Step 5 - Calculating Implied Share Price 27:00 - Advanced Topics

[@Nick-es8fl]

Ada

[@user-es6zb5iv3o]

This video was really helpful! Thank you so much.

[@LordikCZ]

Nice and clear explanation, only thing I miss is how we got the approximations of Revenue, CAPEX and Taxes in income statement section.

[@AstronautOtto]

DUDE thank you so much for including the template.

[@khattak1430]

Hi rareliquid, this video was highly insightful. please do a video on M&A transaction/modeling as well.

[@Pietsuttaja]

Good stuff. Keep em’ comin!

[@keedtalktoem3674]

Great work, clean and precise on everything. Only thing i would argue on is the TGR being equal to GDP growth. Through my experience i’ve always learned to be conservative when valuing a company and therefore have a TGR usually 1-2% lower than GDP growth

[@benadkins7695]

If you're generating a return less than or equal to inflation, you wouldn't be purchasing stocks over bonds unless you owned a majority share.

[@finnsheehan4590]

Hey Ben, any chance you would be able to make a quick video on finding the financials for this model? Great video.

[@videos-qh1gg]

Hey Ben, thank you so much for this incredibly insightful video. I have a question though: If the change in networking capital is already negative, don't we add it instead of subtracting? Thanks :)

[@aryavbothra9662]

This is so awesome!! Could you share the template for the DCF with the multiple cases (conservative, base, etc.) as well please? I’ve been struggling with the formatting for so long and it would be a tremendous help. Thanks so much for this whole DCF series, it’s been a lifesaver!!!

[@MichaelSmith-fo6qq]

did you ever find it?

[@ibonro7778]

I also want it :)

[@eddierosario1537]

Man this really does help for us beginners

[@RichFlair310]

Awesome videos dude! Have been working through your whole channel - congrats on Wharton! Question. In Step 1, why did you project D&A as a % of revenue instead of as a % of CapEx?

[@MCrypto020]

Love the vid, I just think there is a little mistake when calculating the cost of equity at 16:30. It is a + like u mention later instead of x

[@barryaherne215]

Nice! DCFs are a little intense for me, so I'll chip away at this over the week ✌️

[@sebastianpolanco6352]

this has value, thank you!

[@y_limit_yourself]

@rareliquid Love your videos thanks for all your help! I'm a bit confused about how you get the projected revenue amounts and rates though, could you clarify where $525,188 and 11.8% are derived from?

[@ronkatayev426]

Thanks so much for the video!

[@alperdokucu1345]

Thank you! Very helpful.

[@parthbhatt1226]

Thank you! Please also teach a thorough LBO model

[@Tfcistheboss]

Loved this.

[@nikobaklanov4455]

Hello! Thank you for such a cool video, just one remark you had a mistake on the video with "What is WACC" where you multiplied the risk free rate in the formula instead of adding it as you explained further on.

[@alexwedermann3282]

Thanks for the awesome video!

[@willfowls2400]

Great video! Seeing the DCF built out from scratch helps me visualize the process and apply it in practice. Just curious, were estimated revenue growth, EBIT margin, D&A, etc. figures for 2022-2026 based on historical data in the sector? Or was it more of a forward-looking estimate based on sector growth, macroeconomic factors, etc.? Maybe a little bit of both? Any information on estimating forward-looking estimates of revenue growth, future margins, etc. is helpful. Thanks

[@freerunner626]

great question, just watched the video and I has the same question when I noticed the forecasted revenues being hard coded

[@indubitablyyeah338]

Thanks man. Kinda forgot how to do this from Business school already 😂. 🍻

[@rareliquid]

no prob haha

[@thaiphung8357]

Can you also do an instruction video for DDM and RI model? Some corporations do not operate in a way other firms do so DCF is not applicable for them. Thanks

[@dohlay7766]

Hi Ben, thanks a lot for this wonderful video ! I am doing my Masters degree and now quite interested in the wealth management private banking division, what would you recommend to prepare for this position

[@nickstephenson1064]

Great video, thanks!

[@milespulvers5858]

Where did you get all the projections? Did you calculate them, and if so how, or did you find them from an outside source? Building my own DCF for an application so I'd really appreciate some advice.

[@annazaiceva5861]

Hey! This is very helpful! Can you pls do the sensitivity analysis and scenario analysis methodology?

[@WasteSecond]

I'd love a video on how to calculate the diluted shares outstanding

[@EvEnPvP]

Awsome video! How do you automatically get data for a new company into the same excel sheet? Or do you have to do it manually? Thanks

[@MrJunhaotyco]

Hey buddy, great video! I'm wondering if risk-free rate can be used to replace WACC/discount rates?

[@JoshuaLam89]

hi i have some questions, how do you determine the income statement and casflow items from year 2022-2026? And how do you calculate (or get the data) for 'cost of debt', 'risk free rate', and 'market risk premium'? Thanks. Great content.

[@louisvilleseche2996]

Cost of debt is the yield to maturity (or interest rate) that the debt is supplied at, risk free rate is generally the yield to maturity of 10 year T bills, market risk premium is the expected return of the asset minus the risk free rate. Hope this helps

[@BNLien]

Thank you very much for all the useful information, especially the how you answer interview question on DCF. I am wondering if you can do the similar thing with 3 statements models. I have done it but don't know how to put them into words and sumarization. Appreciate your reply.

[@footlongchen]

thanks for these!

[@RicardoFlores-dc8kz]

Awesome! Thank or the video Note: where did u find the Cash and Debt? I search on BS but data does not match.

[@gamerspeed8845]

Very good video ! Really interesting ! Do you know if a database with historical DCF analysis perform by different analysts exist ? Thanks a lot !

[@luisfilipesf]

Hi! Thanks for the video really appreciated. Quick question: how did you make the %growth in revenue and other assumptions?

[@lia55lee]

thank you for showing this !! how do you make predicions for D&A ?

[@viktorf9617]

You are the best, thank you :)

[@rodrigogonzalez2673]

Can you do a video of PowerPoint presentation skills and most common shortcuts there as well?

[@mafaldeta5575]

Thank you for your content

[@donaldduck4595]

Hey Ben, I asked you about 2 weeks ago which keyboard you use. Ever since I got it my wristpain from working 10-12 hours a day went away almost completely. Thank you so much for the recommendation!🙏🏼🙏🏼🙏🏼 Since I still got problems with my right hand, I wanted to ask which mouse you use😃

[@bhargav1389]

Please make a video on advance topics as well. It kind a gives clear picture of DCF model otherwise learning part by part would be very confusing.

[@Obsessivefilms]

Awesome vid❤

[@jordanevans9385]

Thank you so so much!!

[@HoneyBadgarDontGive]

The best part of this video is his pause when he realises its the same page number on every page and I can just tell how that really bothered him hahahaha

[@rareliquid]

LOL this is so true

[@HoneyBadgarDontGive]

Your vids are by far the best to follow and learn from, been sifting through way too many DCF, LBO etc tutorials,. The pdfs and walkthroughs you provide from simple to more challenging builds are great. Nice work. When are the next vids out? We're missing you!@@rareliquid

[@ricardoaldana2137934]

The best, thank you

[@kevinsuh5313]

thank you sir!

[@WeSnapple]

Rareliquid what are some better ways to understand what accounts are operating assets and liabilities? THis part gets me so hung up.

[@nev6250]

Liquid, could you do a desk setup video sometime? Introducing your gadgets etc

[@rareliquid]

yup will be doing this in late august or early september

[@nev6250]

@@rareliquid awesome! Looking forward to it man!

[@ankuryadav5512]

Thanks alot for this

[@rareliquid]

no prob~

[@sriram181]

9:55 hey , how did you arrive at the projected growth in revenue figures and projected growth in EBIT figures ? Was that a product of some calculation or was that a general assumption?

[@lucasbanega_]

Thanks for sharing your knowledge in these kind of video. It's very useful! I have a question. How can I calculate the TGR? And, can I replace the WACC with a discount rate? For example, 15% instead of the Wacc. Thanks!

[@rareliquid]

tgr is usually rate of growth of economy and so for US companies, around 2-3%. and wacc is same thing as discount rate!

[@jeancarlojimenezcondori8574]

Thanks for Sharing. I liked it. I ve seen a theory where incorporate two concepts : SA( Surplus assets) and M ( Minority) to calculate Equity Value. What can you tell me about this ? Thanks in advance

[@arnaudlouispotard8645]

How do you find the growth rate on the forecast years ? (for the FCFF)

[@yashmaurya3679]

Can you please also make videos on treasury stock method, comparable company analysis and precedent transaction analysis.

[@egesoysal6032]

Hello Ben I live in Turkey. In here,right now, there is a huge enflation ( over %150) in this situation people always says you can’t use DCF model because you can’t predict future growth by looking historical datas. Is it true ? Or do you have any suggestion to make projection ?

[@viratverma3616]

Hey Ben, I have questions, why at @9:28 to get projected revenue why have you did this =previous (1+growth rate)? I want to know why we are adding one here (1+....)?

[@Reza_Audio]

4:40 I guess in the first line of FCF calculation, you need to put operating income instead of EBIT while they are not the same, so the first line which will be NOPAT is calculated from Operating Income*(1- Tax rate)

[@danielmassie8722]

EBIAT is synonymous with NOPAT

[@milapthakor3320]

Hey! You are considering market cap as equity value; Isn't that should be derived from balance sheet equity ?

[@jaredyu2000]

Thanks!

[@rareliquid]

No problem!

[@itsgoingtobelegenwaitforit8741]

Hey do you have a Video Where you explain step by step how make the assumptions? Would be awesome

[@Nicolas-qr6xy]

Where exactly did you get the projections for the income statement and cash flow items?

[@adityarajamani93]

how did you get the revenue for 2022,2024,2025 etc. As in what assumptions did you make to get the different growth rate percentage

[@youtubepremium2421]

Love your vids. My one question however is, how does a retail investor such as myself gain access to analyst forecasts for financial metrics? Bloomberg and FactSet are way out of my budget. Would appreciate it if you could share any alternatives which are more viable for retail investors such as myself. Thank you.

[@regansun1629]

You could also just forecast with your own assumptions based on historical data.

[@anthonydely4112]

where did you get the %growth rate ? I mean can you estimate it or is it based on the company's/ professional's assumptions ?

[@rkt3898]

Where do I get TGR for calculating Terminal Value? Why can't I apply the difference in growth between year 2025 and year 2026? Please help

[@atursunov225]

Dear, it was great representation of DCF. Please help me to download the DCF template. I can't download the template from the link.

[@user-mx3lo9zj5y]

Please , can u tell me ,bases on what you are doing assumptions in the beginning ? 11.8 % for 2022 ,how did you get this number ?

[@benjaminli3808]

I may have missed it but where do those projected growth values come from?

[@Wacklewis]

Hi Ben, think there's a mistake in the Cost of Equity formula. In the slides it is RFR x Beta x (Exp Market Return - RFR) but in the excel it is RFR + (Beta x (Exp Market Return - RFR))

[@willy60804]

The excel actually has the correct formula for cost of equity. It’s an error on the slides.

[@apextamang2009]

i also wanted to mention that .

[@MartijnMols]

CAPM

[@keithleyjarvis5663]

Do mind sharing the slides with the steps and points you used in the video?

[@dimitrismarinosmantziagris9158]

Hello my friend! what program do we use to record the videos?

[@kaltiny1997]

Why isn’t cost of sales and sg&a expenses taken into consideration? Are they optional when valuing a company?

[@bhargav1389]

Is calculating sensitivity analysis important in DCF valuation.

[@financebr]

awesome video! i think you could increase the size of your cam, it too small.

[@aml-zq5mc]

Havent watched content like this since Pharma Boy

[@zakiii3913]

When will we get the advanced version?

[@Cleisthenes607]

What do you do if a company has negative cashflows?

[@BigA678]

Do a review of the show Industry on HBO. Its about IB in the UK

[@dixonyamada6969]

the cost of equity formula in the slide has a typo. risk free rate PLUS beta, not TIMES beta.

[@RohitThakur-en7qw]

Thank you Please Make some videos from scratch for financial modeling for college students.😃

[@odyssey9707]

What Is the step to finding the EBIT number , however. Did he just pull that off the consensus of analysts?

[@Risslo23]

How or where do you find every data for the first step ? I mean the projecting revenue / the projecting EBIT / the projecting taxation rates etc ?

[@ObjectiveTrade]

Looks like he pulled it from FactSet.

[@JohnUsp]

How did you calculate all the Expected values for the future years? You just show the number, without explain did you figure out it.

[@ATothFTW18]

How do you forecast EBIT without using others estimates?