Understanding absolute valuation
It is widely accepted that the most accurate way to value an enterprise is by absolute valuation using the DCF method. Crucially, this method considers the time value of money. It also considers results throughout the life of the enterprise. This is the closest to the definition that an enterprise is worth the total cash flow it can generate.
The DCF method includes technical concepts and calculations. We will attempt to simplify those concepts; nevertheless, you will not have to repeat the complex computations required to derive some of the more complex formulas necessary for the valuation. They are readily discoverable in textbooks and over the internet.
The DCF method continues from where the three-statement method ends. It begins with the concept of free cash flow. The goal is to determine the cash flows generated by the company. However, you need to recognize that some of the cash generated is committed, inter alia, to satisfying the debt...
