Why Most Investors Get Valuation Wrong
P/E multiples are easy but misleading. Cash flow is the real story. In this guide, I'll show you how to calculate Free Cash Flow to Firm (FCFF) and use it to find intrinsic value.
Step 1: Gather Financial Statements
Pull income statement and cash flow statement from any 10-K or 10-Q. Focus on: Revenue, COGS, SGA, D&A, CapEx, Change in Working Capital.
Step 2: Calculate FCFF
FCFF = NOPAT + D&A - CapEx - Change in WC
Where NOPAT = EBIT × (1 - Tax Rate)
Step 3: Discount to Present Value
Use WACC as the discount rate. For a simple approach: WACC = 8-10% for mature companies, 12-15% for volatile ones.
Step 4: Add Terminal Value
Terminal Value = FCFF_last × (1+g) / (WACC - g)
Use g = 2-3% for stable growth.
Step 5: Get Intrinsic Value Per Share
Enterprise Value = Sum of PV of FCFFs + PV of Terminal Value
Equity Value = EV - Net Debt
Value Per Share = Equity Value / Shares Outstanding
Want the Excel template with all formulas pre-built?
I've created a ready-to-use Free Cash Flow Model — Excel Template with 3 tabs, sample data for Apple, and automatic sensitivity tables. Download it here: https://microtoolsb2b.gumroad.com/l/your-product-id
No more manual spreadsheets — just input your numbers and get fair value in minutes.
Top comments (0)