Value Investing Company Valuation Template

Valuation Template

DCF valuation tool

The following material discusses a valuation template using principles of value investing and the economic logic behind estimating the worth of a business. It is provided solely for educational and informational purposes.

1. Overview

A concise summary of the business, focusing on its economic engine, competitive position, and long run earning power.

Example:

• Sector:
• Main revenue drivers:
• Competitive advantages (if any):
• Long run characteristics of the business model:

This section should not attempt to predict the stock price. It should describe how the company makes money and why it is worth analyzing from a value-investing perspective.

2. Current financial snapshot

A set of essential figures needed before running the valuation. Keep these consistent across companies.

• Last fiscal year free cash flow:

\text{FCF}_{0} = \ldots

• Diluted shares outstanding:

\text{Shares} = \ldots

• Net cash or net debt (if we want to adjust equity value):

\text{Net Cash} = \ldots

We can add EBITDA, ROIC, revenues or anything relevant.

3. Valuation methodology

We use a multi-stage free-cash-flow model consistent with the Graham/Buffett logic.

We will write in a way that emphasize the fact that everything is just a multiple of \text{FCF}_0:

\text{PV} = \text{FCF}_0 \times K(g_1,g_2,g_\infty,r)

for some scalar K. Providing that the condition used are unchanged, we will define a “Buffett multiple per dollar of FCF”.

3.1 Stage 1: short-term growth

We assume a near term growth rate g_{1}. Free cash flow in years t = 1,\dots,5 is:

\text{FCF}_{t} = \text{FCF}_{0} (1 + g_{1})^{t}, \quad t = 1,\dots,5

3.2 Stage 2: maturing phase

Growth slows to g_{2} from year 6 to 10. Using \text{FCF}_{5} = \text{FCF}_{0}(1+g_{1})^{5},

\text{FCF}_{t} = \text{FCF}_{5} (1 + g_{2})^{t-5} = \text{FCF}_{0} (1+g_{1})^{5}(1+g_{2})^{t-5}, \quad t = 6,\dots,10

3.3 Stage 3: terminal regime

Long run perpetual growth g_{\infty} starts after year 10. The terminal value at (t=10) is:

\text{TV}_{10} = \frac{\text{FCF}_{10}(1 + g_{\infty})}{r - g_{\infty}} = \text{FCF}_{0} (1+g_{1})^{5}(1+g_{2})^{5} \frac{(1 + g_{\infty})}{r - g_{\infty}}

since:

\text{FCF}_{10} = \text{FCF}_{0}(1+g_{1})^{5}(1+g_{2})^{5}

3.4 Discounting and factorization

Each cash flow and the terminal value are discounted at the required return r. The present value is

\text{PV} = \sum_{t=1}^{10} \frac{\text{FCF}_{t}}{(1+r)^t} + \frac{\text{TV}_{10}}{(1+r)^{10}}

Substituting the expressions above and factoring out \text{FCF}_{0},

\text{PV} = \text{FCF}_{0} \cdot K(g_{1},g_{2},g_{\infty},r)

where the DCF factor per 1 unit of current FCF is:

K(g_{1},g_{2},g_{\infty},r) = \sum_{t=1}^{5} \frac{(1+g_{1})^{t}}{(1+r)^t} + (1+g_{1})^{5} \sum_{t=6}^{10} \frac{(1+g_{2})^{t-5}}{(1+r)^t} + (1+g_{1})^{5}(1+g_{2})^{5} \frac{(1+g_{\infty})}{(r - g_{\infty})(1+r)^{10}}

This makes the Buffett-style interpretation explicit:

• K is the DCF multiple on current owner earnings,
• 1/K is the corresponding earnings yield implied by the 3 stage growth profile and discount rate.

Then for any company where the discount rate is the same we can just plug its \text{FCF}_{0} per share into:

V_{\text{intrinsic, per share}} = \text{FCF}_{0,\text{per share}} \cdot K

and apply the margin of safety on top.

4. Required Return

Explain the of discount rate. A common setup:

• Risk-free rate:

r_f = \ldots

• Equity risk premium:

\text{RP} = \ldots

• Required return:

r = r_f + \text{RP}

This keeps the analysis consistent across companies.

5. Scenario Analysis

We can use three scenarios to test robustness.

5.1 Bearish

• g_{1} =
• g_{2} =
• g_{\infty} =
• r =

Compute:

\text{Value}\times {\text{Bearish}} = \frac{\text{PV}\times{\text{Bearish}}}{\text{Shares}}

5.2 Base

• g_{1} =
• g_{2} =
• g_{\infty} =
• r =

\text{Value}\times{\text{Base}} = \frac{\text{PV}\times{\text{Base}}}{\text{Shares}}

5.3 Bullish

• g_{1} =
• g_{2} =
• g_{\infty} =
• r =

\text{Value}\times{\text{Bullish}} = \frac{\text{PV}\times{\text{Bullish}}}{\text{Shares}}

6. Summary Table

A table will help to summarize the valuation:

Case	Intrinsic value per share	Margin of safety	Notes
Bearish	$…	…%
Base	$…	…%
Bullish	$…	…%

7. Interpretation

We can then explain what the numbers mean:

• How wide is the valuation range?
• How sensitive is the model to changes in g_{1} or g_{\infty}?
• Does the business have characteristics that support the bullish case?
• Does the bearish case still offer attractive returns?
• Is the current market price providing a margin of safety?

This section turns a numerical model into an investment viewpoint.

8. Final assessment

A short, actionable conclusion:

• whether the company fits a long-term value portfolio,
• whether the price is attractive relative to the intrinsic value,
• whether future monitoring is needed (management quality, cash flow consistency, reinvestment rate),
• any potential catalysts or risks that matter for long-horizon investors.

9. Appendix

We can add any supporting material:

• historical free cash flow trends,
• historical ROIC or reinvestment ratios,
• past buyback behavior,
• sensitivity tables

DCF valuation tool

Go to the top of the page