Business Valuation - Discounted Cash Flow

Business valuation is typically based on three major methods: the income approach, the cost approach and the market (comparable sales) approach. Among the income approaches is the discounted cash flow methodology calculating the net present value ("NPV") of future cash flows for an enterprise. As an alternative to the more abbreviated income capitalization approach, this methodology is more relevant where future operating conditions and cash flows are variable - or not projected to be materially consistent with current performance levels.

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Definitions

Expected annual growth This is the rate you expect your business to grow. This rate is only used on years 5 and above to estimate your future cash flow. Weighted average cost of capital (WACC) This is the cost of capital, or the interest rate, your investors require to put money into your business. Unless you are a Fortune 500 company with excellent

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