The valuation playground
A company is worth the cash it will produce, discounted for the wait.
That sentence is the whole of valuation, and the spreadsheet that implements it scares people off before they get to it. So move the assumptions instead. Change how fast the company grows, how profitable it is, and how much you demand for the risk, and watch what a share is worth. The point is not to arrive at the right number. It is to see how violently the number moves when you nudge a guess.
Your assumptions
How fast sales grow each year for the next five.
Profit on each dollar of sales, before tax.
What you demand for taking the risk. Higher means you pay less today.
Forever. Above ~3% you are claiming the company outgrows the economy permanently.
- Starting revenue
- $3B
- Shares outstanding
- 0.12B
- Net cash
- $0B
- Tax rate
- 21%
Implied value per share
$42.40
Market price
$70.00
Upside to your number
-39%
Free cash flow, five years — solid is today's value of it
Where the value actually comes from
77% of this valuation rests on what happens after year five — the part nobody can forecast. That is true of almost every discounted cash flow ever built, and it is the honest reason two careful analysts can look at the same company and disagree by half.
If you are wrong — value per share across growth and discount rate
Green is above today's market price, red below. Your current pick is outlined.
| Growth ↓ / Rate → | 7.5% | 8.25% | 9% | 9.75% | 10.5% |
|---|---|---|---|---|---|
| 8% | $46.74 | $40.87 | $36.36 | $32.78 | $29.88 |
| 10% | $50.65 | $44.22 | $39.28 | $35.36 | $32.18 |
| 12% | $54.83 | $47.80 | $42.40 | $38.12 | $34.65 |
| 14% | $59.32 | $51.64 | $45.75 | $41.08 | $37.29 |
| 16% | $64.12 | $55.75 | $49.32 | $44.23 | $40.10 |
Teaching model. Simplified, and not investment advice.