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Subject:  Re: Discounted Cash Flow Model - Negative FCF Date:  2/8/2011  11:03 AM
Author:  jackcrow Number:  1633 of 1671


I doubt anyone can give you a fixed answer for your questions. There is a reason you have options. The game is to try to build a model that you believe best fits the firm being analyzed. All these variables can differ from industry to industry and management team to management team. If you really want to figure this out you need to find some comparable companies and dig through their histories and see what has occurred in the past. Then you need to decide how likely the new kid on the block is going to mirror that/those patterns.

For some start ups operating margin expands over time. Software companies are like this; it takes time to build the marketing infrastructure and sales force, to get their foot in the door they may sell their product as cheap as they can. As they gain market share and the back end build up subsides operating margin expands. If they gain pricing power they gain further margin expansions. A retail firm is a different beast as margins are expected to be tight and growth needs to come from the top line. Service firms are different still and lie somewhere in the middle, and on and on.

Some industries are far more working capital intensive then others. Some firms may need large working cap as percent