Discounted Cash Flow (DCF) and Growth ModelsLocked: included in All Access

Valuing equity from the cash flows it will pay: the inputs of dividend discount, FCFE, FCFF and residual income models, constant and multistage growth, their shortcomings, and preferred stock.

1. 1. Present value models: DDM and FCFEA share is worth the present value of the cash it will deliver: either the dividends expected (DDM) or the cash the company could pay out (FCFE), discounted at the required return on equity.Video · 5 minLocked: included in All Access13 min
2. 2. Choosing the cash flow: dividends or FCFEDividends are the narrowest cash flow to equity and fit only steady, high-payout companies; FCFE adds buybacks, share issues and retained cash, so it fits most other companies but moves with every financing choice.Locked: included in All Access13 min
3. 3. FCFF, EBITDA and residual incomeFCFF measures the cash available to all capital providers and barely moves when financing changes; EBITDA is a pre-tax, pre-investment shortcut that overstates cash; residual income values the profit earned above the cost of equity.Locked: included in All Access14 min
4. 4. Preferred stock and the Gordon growth modelA perpetual preferred share is a perpetuity worth D/r, and a common share with dividends growing at a constant rate forever is a growing perpetuity worth $D_1/(r-g)$.Video · 6 minLocked: included in All Access15 min
5. 5. Multistage dividend discount modelsWhen growth will change, forecast the dividends of the unusual period one by one, value everything after it with the Gordon model as a terminal value at time n, and discount both back to today.Video · 5 minLocked: included in All Access14 min
6. 6. Growth assumptions for any cash flow: constant, implied and two-stageThe constant and two-stage growth models work for FCFE and FCFF as well as dividends; the market price can be turned into an implied growth rate, and growth itself is estimated from history (watch the base year) or from the sustainable growth rate.Locked: included in All Access15 min
7. 7. The DCF process: discount rates, terminal values and rangesA DCF valuation follows five steps: choose the cash flow, forecast it, discount it at the rate that matches whose cash it is, add a terminal value, and turn the result into a point estimate or range to compare with the price.Locked: included in All Access14 min
8. 8. Shortcomings of constant and multistage growth modelsGrowth-based DCF models can mislead because the chosen cash flow may miss part of the value, the base year and static assumptions may not represent the future, the going-concern assumption can fail, and the cost of capital moves with the economy.Locked: included in All Access12 min
9. 9. Preferred shares: required return and contingency featuresA plain preferred share is valued like a bond at a required return below the common equity rate, its market price reveals that return, and call, put and conversion features shift its value and the dividend it must offer.Locked: included in All Access9 min