The discounted cash flow model is the most advocated model for valuing a stock. Under this model, an analyst will estimate the future cash flows for the company, and discount it with the appropriate discount rate. Traditionally, analysts have used dividends as the proxy for cash flows, hence the dividend discount model. However, the problem
To value a company, one of the most popular methods is to use the discounted cash flow method. Traditionally, the dividends paid by the company are used as a proxy for the cash flows of the business. However, the dividends do not truly reflect the amount of cash flow the business can generate for its
This video is a part of online course on Valuation by Professor Aswath Damodaran of NYU. This lecture discusses: DCF, Dividend, FCFE and FCFF models. It also discusses the risk-free rate as an input and the cash flow consistency. The class is currently being taught by Prof. Aswath Damodaran at the NYU’s Stern Business School.
FCFF vs. FCFE Definitions FCFF: Free Cash Flows to the Firm are available to both suppliers of equity and debt capital; return of these cash flows to stock and bond investors does not threaten the company’s existence as a going concern. WACC & FCFF: When performing a company valuation using discounted FCFFs, the discount rate