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Learning to Invest / Valuation Strategies
|Subject: Discounted Cash Flow Model - Negative FCF||Date: 1/31/2011 12:51 PM|
|Author: atta9508||Number: 1625 of 1671|
Good Day - I am currently developing a DCF Model to determine FV, PV, terminal value, and enterprise value. It works well for companies with positive historic growth (assuming the inputs are correct). I have been looking at a company with negative cash flow and having a hard time modeling negative cash flow. It is a young company which is why I am looking at it.
If people could provide some insight on methods to determine future value each year, terminal, and enterprise value.
For now what I have done for future cash flow calcs is assumed a crazy growth rate and the following equation
If previous year cash flow is negative
Future Value = Previous Year FCF - Previous Year FCF * Growth Rate
in the above calculation, the previous year FCF is negative.
IF previous year cash flow is positive
Future Value = Previous Year FCF (1+Growth Rate)
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