Cash flow valuations
Taught by Ben Wilson · AI tutor support included
You'll learn how to value a business using cash flow discounting techniques—the theoretically superior method that applies net present value principles to forecast future cash flows.
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In this lesson
- 0:00 Cash flow valuation and NPV techniques
- 1:01 Project appraisal versus business valuation
- 1:45 Two valuation approaches explained
- 3:01 Cash flow to equity shortcut method
- 4:14 Calculating cash flows from financial statements
- 5:24 Working example: Jemmy Co valuation
- 8:05 Perpetuity formula and equity value
- 9:50 Strengths of cash flow valuation
- 10:45 Weaknesses and estimation challenges
About this lesson
This lesson covers two approaches: the cash flow to all investors technique (using pre-interest cash flows discounted at weighted average cost of capital) and the cash flow to equity technique (using post-interest cash flows discounted at cost of equity). You'll work through practical calculations using published financial statements, adjusting for tax, capital investment, and depreciation to estimate sustainable trading cash flows. Finally, you'll explore the strengths of this method—its focus on actual cash movements and ability to incorporate synergies—alongside its limitations, particularly the heavy reliance on assumptions about future performance and the cost of capital.
Duration: 12m
Transcript
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