Cash flow based valuation models

In this lesson

1. 0:00 Cash flow valuation models overview
2. 1:01 Dividend valuation model fundamentals
3. 2:07 Dividend growth model explained
4. 3:29 Discounted cash flow approach
5. 5:02 Worked example: Sox Co acquisition
6. 7:06 Assessing relevant cash flows
7. 8:01 Valuing irredeemable and redeemable debt
8. 9:24 Convertible debt and preference shares

About this lesson

The video covers the dividend growth model formula, walks through a practical acquisition scenario using discounted cash flows in perpetuity, and shows how to value other securities including redeemable debt, convertible debt, and preference shares. Cash flow based valuation overcomes the limitations of accounting profit by using actual cash movements as the foundation for value. You'll learn to identify relevant cash flows (those after interest and tax), adjust for non-cash items like depreciation, and apply the appropriate discount rate—typically your weighted average cost of capital. The worked example with Sox Co acquiring Shuker demonstrates how to calculate the maximum acquisition price by discounting future cash flows and handling perpetuity calculations correctly. By mastering these models, you'll be equipped to handle valuation questions with confidence across FM, AFM, SBR, and strategic case studies. The lesson emphasises the practical differences between each approach and when to apply them, ensuring you can select and execute the right model under exam conditions.

Duration: 11m