Discounted Cash Flow Valuation

Some of my readers have requested me to share my worksheet on computing intrinsic value of companies. Basically, my primary way of computing a company's value is the forecasting of the amount of cash which is generated throughout the years. Using the discounted cash flow valuation, I will then derive the intrinsic value of the company.

There are actually many kinds of valuation tools out in the public, but till date, this have served me well. I have actually attached a copy of the computation worksheet here for my readers' peruse. This worksheet is created based on a 2-stage discounted cash flow model, i.e. it contains a first phase of growth which in this case spreads over 10 years and a second stage of terminal growth. Normally, I will not take into consideration the terminal growth as I will not be able to forecast the company's growth with certainty after 10 years. To sum it up, I will only invest when the current stock price is less than or equal to 75% of the intrinsic value.

Any readers who have any problems/queries pertaining to my worksheet can drop me a comment/email.

The toughest part of computing a company's fair value is not selecting the correct tool, but the ability to forecast the company's future earnings. As Warren Buffet quotes, "Its better to be approximately right rather than being precisely wrong."