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The reinvestment rate measures how much a firm is plowing back to generate future growth. So clearly the reinvestment rate matters for growth. How does the reinvestment rate correlate with growth and therefore with the value of a business? We explore how the reinvestment rate impacts the value of a business in DCF valuation in this article in the specific condition that the business is NOT profitable.

How does the reinvestment rate impact the value of a business in DCF valuation when the business is NOT profitable?

You are estimating working capital to arrive at the free cash flows of the business. What type of current assets are considered as part of current assets when computing working capital?

Multiple tax rates apply to a company. Federal /state statutory tax rates, Effective tax rates, marginal tax rates, etc. What tax rates apply to a company you are considering valuing depends on the specifics. Here are some you must definitely consider.

The present value concept discounts the cash flows of a period by the entire period using the discount rate. The DCF valuation method relies on the present value concept to value the cash flows of a business. Therefore the DCF valuation method also discounts the cash flows of a period by the entire period using the discount rate. This assumption may be an appropriate reflection of reality for most companies. But not all companies. For some companies, the midyear convention is not appropriate. We this when the midyear convention is not appropriate on this page.

First, we must appreciate that there is a difference between depreciation and amortization cash flows as computed in the IRS code/tax books or those reported in the financial accounting/reporting books. Now we can discuss, which of these must be factored into our DCF valuation model.

If you had access to depreciation and amortization cash flows as computed in the IRS code/tax books or those reported in the financial accounting/reporting books choice, which one would you prefer to use?

How will your DCF model change if your company pays for acquisitions using cash, stock or both? The free cash flow of a company is lower if a company pays for acquisitions with cash. The free cash flow will be higher if it pays using stock.

We address its question here: “How does it matter if the company pays for acquisitions using cash, stock or both when estimating cash flows for a valuation?”

We looked at how to forecast the revenues of a company that has a history of acquisitions. But how do we forecast the revenues of a company that has a history of acquisitions?

We address this question on this page: “How are acquisition costs forecasted for a company that has a history of acquisitions?”

What are the basic requirements of building a DCF model? We discuss the Essential Ingredients of a DCF Valuation Model on this page.

In today’s technology and internet-enabled world, some rapidly growing companies grow at unearthly rates of 50%, 100% and even 200% a year during the first few years. These tremendous growth rates are not sustainable for long periods. These high growth rates usually drop off in a few years and reach more earthly rates of 10%, 15%, 20%, or even 30% which are still fantastic growth rates for most companies. Eventually, even these companies become mature, face competition and encounter obstacles, and over time slow down to grow at historical rates.

What are Three-Stage or Multi-Stage Models?