How to value a company using discounted cash flow (DCF) - MoneyWeek Investment Tutorials

[@Villagejonesy]

I think this man is a great teacher. He explains everything in very clear language, and avoids obscurantism, yet without slowing the moving train down so much that it's at a crawl. He does well at presenting all the principles clearly, when it is easy to make someone's head swim, especially when a bit of maths are introduced. Good work!

[@janefromcanada6943]

In all my years of accounting I have never heard it explained better. You made it so easy to understand. You are an excellent teacher. Thank you for posting

[@davidtorres3333]

Can you do a real-life example with a publicly traded company?

[@seelondon100]

The explanation makes the concepts are pretty easy to understand. Very helpful.

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If you wanna be successful, you must take responsibility for your emotions, not place the blame on others. In addition to making you feel more guilty about your faults, pointing the finger at others will only serve to increase your sense of personal accountability. There's always a risk in every investment, yet people still invest and succeed. You must look outward if you wanna be successful in life

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This is quite needful but for beginners, you shouldn't settle for videos alone or you see yourself losing all your money just like me when I started trading with these videos on here. We should be prepared to contribute

[@pakasunijo9370]

It has been mention several time in the video, "it's basic" of course other assumptions and calculation are not mention.This guys proves that any "complicated topic" should be explainable to a kid!!!! wonderful job Tom

[@salgsalgglas]

Thankyou Tim. Your voice modulation is perfect for the listener to grasp the concepts you explain.

[@MoneyWeekVideos]

Yep - the result of applying DCF is to generate a net present value. Tim.

[@dekass7965]

I always come back to this video.. It's been over 2 years now.. The best dcf explanation!

[@timmypompom4810]

Thanks for the detailed explanation. You're the first person on youtube that I've seen so far that goes into detail to give people a better understanding of the formula instead of just showing us how to plug in the numbers.

[@awdswds1988]

This guy is freaking amazing. Superb explanation!!!

[@willi9723]

Thank you Tim. I'll apreciate if you could continue with these valuation models. You're a really nice teacher.

[@slavachicago99]

Interest rate of 10% sounds so extreme in 2020

[@kingofheartsxyz]

this video is for high school kids .. a lot of the video i watched they are scared to discuss how to arrive at the discount rate and what to do if a company has a negative EBTA

[@mehmetsahinozalumni5620]

%10 sounds so low when you live in Turkey

[@antonioromero878]

@@mehmetsahinozalumni5620 spot on!

[@celmasantos831]

@@kingofheartsxyz ,n

[@vj5vt]

Well nasdaq went up approx 40% in 2020 and s&p 500 about 16%.

[@mikenorman5172]

This is brilliant Tim and a good video to watch. I really want to start something new like investing in the market. For starters I have no idea

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I’ve earned £14k trading on his portfolio account.This is truly a remarkable experience for me Maria

[@discountingrate1869]

Discounting Rate . com

[@popkahchin]

read books like fundmental analysis for dummies or intelligent investor or security analysis. These books will be enough for you

[@adamfearon672]

Great video. Thank you. (Finance major that was taught DCF in college, but never actually learned it. Until now)

[@Samil360]

Adam Fearon haha same here!

[@darkdefender6384]

Adam Fearon I hear ya man. I was a business major and I wish profs explained things so straight forward. I guess if they did “too many” people would actually learn and graduate from college LOL!

[@shrutipun3851]

Are

[@shrutipun3851]

Adam Fearon was my

[@joshuamanampiu6489]

Thanks for this simplification of the DCF Model. Yes there is demand for more.

[@fatemeazizi1863]

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[@PrasenjitSarkarSingapore]

Have watched a few of your videos and found, in each one of them (including this one), a very lucid explanation which even a layman can understand. Thank you!

[@Thrillseeker8922]

I could listen to this guy talk about bricks and mortar all day long. The way he talks and explains things is so entrancing.

[@jahmiahguillory8711]

Great intro video. Just finished my MBA and needed a quick refresher as I evaluate a business

[@blackamericanlesbianprofes4357]

Thank you so much for explaining in detail, very helpful in understanding. I am a mature (age 35 going on 36) BSc Accounting and Finance International (Black American) student. UPDATE some hours later: someone's comment on here is correct. I realise too (further research I have done) that Tim Bennett forgot to acknowledge the initial investment figure into the business. You then need to subtract the Total DCF from the initial investment figure to see if the answer called NPV (Net Present Value) will hopefully be positive to re-invest into the business. And this would interest the investors to want to invest in the business and earn a reasonable return. The rest of what Tim Bennett has mentioned is valid.

[@tschmiedeke9291]

Nice work Tim - would be very helpful if you could take the three valuation techniques you covered and apply them to "real-world" examples. Most of us are interested in the stock market, so how can we better use these techniques to perform valuations on the companies we are looking to invest in vs. an outright purchase? Again, really appreciate your teaching style. Thank you!

[@Fernandolunatoro1]

Todd, It has very little to do with it. Just look at today's PEs. Before you go at it Fundamentally, I suggest you learn a good technical analyses. Price action is king.

[@Villagejonesy]

Todd, I think that is a good idea as well.

[@imlkr_]

It's been 7 years... How you doing mate?

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[@rezakhoyi9438]

Fantastic teaching method employed by this brilliant teacher-Bravo

[@roynotintown]

Your lectures have played a predominant role in clearing my professional exam. it has enhanced my understanding about the subject :) thanks a lot:)

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[@bharatmittal9937]

Appreciate. Very nicely presented. Easy for students to comprehend. I am also a faculty and a professional in India dealing with Business Valuation and Corporate restructuring. Enjoyed the presentation style and the Content too. Keep it up. All the best.

[@michaelmidzio1472]

To me this is just an introduction video on DCF mechanics, which does a good job. Discount rate (e.g. 10%) will be different per each company and will change over time. The riskier the company the higher the discount rate. And yes, DCF is built upon PV calculation. If you understand PV formula you will also understand DCF.

[@caeila808]

i despaired of ever understanding DCF analysis but this gave me a toehold!

[@johnbandah2639]

let me cry first for failing my last exam 😭😭😭 finally I understand these the DCF. thanks for the great video

[@davidstevens3934]

Such a pleasant surprise to get a trustworthy British accent on a financial explanation video 😂

[@D4rkenedskies]

Why didn't I see you a year ago!? I failed that class, elective in my last year... Now working in m&a, I finally found you and understand... Thanks you, I'm just feeling stupid how I didn't understand it and failed the test...

[@robnugent916]

great tutorial...wish I had this back in grad school

[@malgray7396]

I find Tim an excellent Tutor .love him and his white board.usually go back over it a couple times to totally get it.

[@narijodeco6869]

Sir, you are such a good teacher. Thanks!

[@nathaliehumstur7009]

THANKS YOU SO MUCH! THIS HELPED ME A LOT! ❤️❤️❤️ IM A FIRST YEAR FINANCE STUDENT WISH ME LUCK!!!

[@PapaPev]

Please could you do a weighted average cost of capital video? Specifically with a touch on finding component costs... Would make a good answer for the "how do you get the 10%" question.

[@evanwilliamson3602]

This dude's voice is so calm, I'm going to put his videos on to get to sleep haha.

[@emmanuelowolabi12]

You're a great teacher. Enjoyed this lecture! 👍

[@alireza2295]

Terminal value and the impact of interest rate well explianed. Thank you!

[@BladeBoques]

This was really helpful! I've studied this awhile and this is the first time is really made sense. Is there a part 2 that you made somewhere along the line? Hope there was demand for it, I'd like to learn more from you on the topic of DCF.

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[@debashishbramha]

Just Brilliant. Thanks from India.

[@dereka8041]

Finance 101. Finished my M.B.A., back in 2012. We studied several business case studies, from the Harvard Business School. Maybe considering inflation would have helped too. Inflation runs around 1.8 percent.

[@DewTime]

I immediately noticed that 90m at a rate of 10% does not add up to the original 100m. Should have rounded the 90.9 to 91. Anyway good video!

[@ranilium]

Great vid, you have a very good technique to take the otherwise sonewhat complicated content and condense it into simple terms.. I got alot out of it . Thanks mate

[@lunamorris2091]

Thank you a lot for this video. This is very interesting and informative. Keep posting like those amazing videos, this is awesome.

[@sameester]

Thanks, would love to watch a follow up!

[@Omahaneb6]

Best dcf teaching

[@iliyaremizov3679]

Can you do a more thorough video about the DCF valuation method? getting into the how you determine the terminal value, the interest rate / WACC. thanks !

[@yusifsadik6935]

Awesome video. Wish this guy had more.

[@connorchristopher4917]

These videos are more helpful than my corporate finance lectures at uni

[@craigwalker6572]

Very useful and well explained, thank you

[@gmo709]

For the cash flows in the more advanced sessions, I assume you will use future FCF and remove Capex portion. I think.Buffet used owner's earnings FCF, but that calc gives me a headache. So you want to set that discount rate to what you want to beat what you can get in a safer investment. Then when you find the particular stock and the intrinsic value, you want a big margin of safety! That is putting the intrinsic value against the market value. That % shld be bigger for small fish (50%) and around 25% for Industry leaders. Basically, you want to purchase at a deep discount...just like everything else you buy...but you want quality. Takes work bc many stocks will be priced at or near intrinsic value. When priced way over, time to wake up and come alive. It is quite exciting to find an edge. But first, I must study more. Best to really learn all.you can up front prior to action. It is a shame I didnt study this yrs ago, but that is ok. It is the process and journey that is satifying. The better returns is icing on the cake.

[@oakinvestment5371]

I now know as much about how to value a company using DCF as I knew 10min 49sec ago..

[@amitd1572]

Brilliant Video to educate the masses. Appreciate.

[@marshallhosel1247]

Thank you, was useful refresher and info.

[@TheHumanSpirit]

Excellent presentation. *Thank you.* Your presentation skills (e.g., cadence, calm, clarity, knowledge, ability to simplify, ability to foresee questions) = 💯 across the board. *Subscribing*

[@millan112]

The DCF will help you calculate the market value of company assets. Goodwill is an asset so there is that connection.

[@zbrooks6]

This is not a Discounted Cash Flow Valuation; this is simply the sum of present values. This is very misleading, you should change the title of this video. There is no mention of how to reach cash flows from revenues.

[@g1kluang]

He is correct.

[@Xez1919]

+Zachary Brooks I wanted to write the same ! This is just NPV

[@aylindemirci6679]

exactly! it took 10 minutes of my life!

[@justoparrasantana3248]

Do you know what is rounding numbers? your numbers are correct too in some way.

[@alphaiqbal1840]

he mentioned discounted cash flows.. not FREE cash flows.

[@ab5526]

Which calculation for the value of intrinsic value is most accurate: 1) DCF(earnings based), 2) DCF (FCF based), 3) projected FCF. Thank you.

[@Sam-zx4rp]

Do em all and take the mean value 🤔🤔

[@ely2732]

Great video! I would like a more collocates video. And you could go over CAPM model as well within the more complicated DCF valuing of a company.

[@gourmayo]

Very well done video. Clear and concise - great teacher

[@darylallen2485]

I find your videos reek of competence sir. Well done.

[@realdeal3262]

Great lesson Tim bravo

[@cuihe6992]

Great videos! I was scratching head revising for corporate finance exam and still couldnt get my head around the evaluation approach. You are a star!

[@042justin]

Is there a video expanding upon this concept? Also, is the NPV in a DCF analysis like saying that instead of the company being worth 500 million, its actually worth 378 million? Moreover, are the cash values for every year Free Cash Flows??

[@lazarovera03]

Top comment didn’t age too well. No in 2023 interest rate for a 5 year Loan in the U.S. is around 10.23%. Goes to show that the economy is a huge rollercoaster

[@Theodore_e]

Thank you for this helpful video! Can someone please explain how to get your growth rate to then get your terminal value.

[@mildundklar]

Excellent! You've helped me already with this superficial overview! Greetings from Germany!

[@zikapavlovic8729]

Well explained! Thank you Tim!

[@justinrrizzo]

Just so I understand correctly, this valuation would no be entirely precise, since you would be actually be earning 10% on the 1st years earnings for 4 years, and 10% on the 2nd years earnings for 3 years, etc. Is that correct? (actually, wouldn't that calculation be the Internal Rate of Return?)

[@maxmudbekmurodov6938]

the best explanation i saw) thanks from Uzbekistan

[@HeldEd]

This was such a great explanation, great video!

[@abarthell]

lowkey unintentional ASMR

[@mullerstephan]

since interest rates are negative now is the money actually getting more worth in the future?

[@Alice3456able]

So well explained! Finally understand this concept at its roots

[@maliquepapailler]

Great introductory for me, into learning about DCF. Thanks!

[@luisborges2048]

This is a greatly explained video.

[@bradleylapalomento8679]

Repeating Tim to emphasize - Concerns when using DCF Method to Valuate Companies: Do companies stop in 5 years? Will they stop in 10 years? How accurate are the future cash flows being used? Is your assumed interest rate correct? There's many assumptions being made to utilize this model.

[@varunhegde7828]

That was very clear and but what if the cashflows still occurs after 5years untill infinity but we have only 5 years cashflows and the cash flow contines 100million there after ?

[@shalvsakhare2978]

Thank you for the great lesson! Keep it up.

[@kenwallin1133]

You have established that this company (assume on-going operations) will generate 500 m pounds, then you discount, which is good so far. Now if I am going to consider buying this company ... what will be the NPV after I pull out the amount I pay for the company?

[@ValerieAbena]

Thank you so much! After some time stressing I finally find a video that explains it in a way I can understand 🤗

[@ITSophy]

Helped more than my text book, great tutorial, actually understand now!

[@tannertucker22]

An enterprise is assumed to operate in perpetuity. Why only 5 years? Moreover, the the enterprise is a net debtor, it cash is being used to continually pay down debt if it continues to grow. How does one account for that? Thank you.

[@dereka8041]

In my opinion, the most difficult part of valuing anything is determining a proper "r" value. To me, that's the most difficult part.

[@antonioromero878]

Well standard is 6%

[@stevenpaulbutler]

Thanks for the video. Would appreciate if there could be another video on the maths aspect. How you actually used the 10% to work out the discounted cash flow. I think a detailed summary of the 1/1+r (n). This to me makes no sense. Other than that I understood everything,

[@petrawood8604]

Interesting point Stevie B

[@shanghaiprivateguide]

something I would like to know more as well, this 10% discount rate is actually can't apply in real life, CAPM model to calculate the return for specific company.also about the forecast could be wrong, what the forecast include? variable cost and fix cost, opportunity cost? I am writing a report for DCF for compare 2 natural gas project, stuccoed at recommendation and limitation, any advice would be very helpful.

[@sumitKumar-qi4tu]

Same problem

[@aaront1381]

Very nice video. Wished I found this earlier

[@ujku6984]

The reason why I don’t like DCF method is because it has several variables which have to be predicted. Such variables themselves depends from other variables which require other prediction which vary among companies. The final value and the interest rate of discount are actually the killers. Interest rates being really a challenge these days and alternative investment introduce further risks.

[@valueink]

Could you elaborate on what do we do with that number ($378 mil). How do I figure out if a company is undervalued or overvalued?

[@lxnny2357]

What is the interest rate you're referring to? And why is it relevant here? Is it related to corporate bonds? I get that it's related to the risk, but how do you pick that number?

[@sathyajithmenon1384]

Fantastic explanation

[@mozpassion8996]

Hi Tim, how do we get in to decision if we could buy or not this company? and if is yes, for how much?

[@Roger-dv5vo]

on what company sectors could DCF be used? And is it just me or do I this method seems to be very uncertain and not quite like the very precise way to value a company because we can't even predict what's gonna happen tomorrow or next week, like how are we supposed to be able to forecast that a company could generate XXX amount of cash in the next 5 years, 10 years or so on. Do we need to always revaluate a stock/company once in a while just to be up-to-date on the recent company progresses?

[@ahmedtawfiq3625]

Where is this person now?? I want more of these videos ❤️❤️

[@snptrader2]

I learned this in college many years ago, but it was never called discounted cash flow. When he said "Net Present Value", then the lights went on. Funny how something several decades ago that was learned is recalled by just calling it what was learned decades ago.

[@jenifferhall6868]

Marvelous video...Tim. Im looking forward to see the more details part of DCF.

[@adambanerjee8037]

Excellently summed up! 👏🏻

[@Financebymahsa]

I have a DCF video with only 58 views it is so so so weird that I taught whatever I learnt in my workplace one thing that nobody would do it and ppl are ontetested in watching videos that will never make them an expert in finance!

[@drno3391]

You should do an new video in view of the negative rates to show of officially negative inflation impacts the CF over time... and then explain the concept of Zombie companies and how the FED and central banks keep them alive, thereby triggering a deeper deflation...

[@vascogamero530]

Excellent video.

[@aridiconsiglio]

great video but where should i get the interest rate from ?