Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Business Administration

No 1:
A Tutorial on the Discounted Cash Flow Model for Valuation of Companies

L. Peter Jennergren ()

Abstract: All steps of the discounted cash flow model are outlined. Essential steps are: calculation of free cash flow, forecasting of future accounting data (income statements and balance sheets), and discounting of free cash flow. There is particular emphasis on forecasting those balance sheet items which relate to Property, Plant, and Equipment. There is an exemplifying valuation included (of a company called McKay), as an illustration. A number of other valuation models (abnormal earnings, adjusted present value, economic value added, and discounted dividends) are also discussed. Earlier versions of this working paper were entitled "A Tutorial on the McKinsey Model for Valuation of Companies".

Keywords: Valuation; free cash flow; discounting; accounting data; (follow links to similar papers)

55 pages, June 18, 1998, Revised December 13, 2011

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Full text versions of the paper:

hastba0001.pdf    PDF-file (708kB) 
Files with additional material for the paper:
hastba0001.mck.xls    First worked example, Excel file (131kB) 
hastba0001.mck_ext.xls    Second worked example, Excel file (126kB) 
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