The Practical Application of Discounted CashFlow Based Valuation Methods
THE PRACTICAL APPLICATION OF DISCOUNTED CASHFLOW BASED VALUATION METHODS Publication: Studia Universitatis Babes Bolyai – Oeconomica, LII, 2/2007 Author Name: Takács, András; Language: English Subject: Economy Issue: 2/2007 Page Range: 1328 Summary: Valuation methods based on Discounted CashFlow (DCF) play a major role in the field of company valuation. The current literature contains a reasonably deep and detailed theoretical basis for DCFbased valuation, although, when starting to apply the techniques to evaluate a real company, some practical problems may appear. This study summarizes the most important practical difficulties which may hinder the valuation process and proposes different ways of solving these. Beyond the …show more content…
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According to [Fernandez, 2002], the most important types of cashflow are the Free cashflow (cashflow available to satisfy both the shareholders’ and creditors’ return requirements), the Equity Cashflow (cashflow available for shareholders) and the Debt Cashflow (cashflow available for creditors). 14
Earnings Before Interest and Tax (EBIT) – Tax on EBIT (EBIT * Tax rate)
Accounting earnings
= Earnings After Tax without debt
+ Depreciation expense – Increase in gross fixed assets – Increase in Working Capital
Adjusting items
= FREE CASH FLOW (FCF)

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