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Learning to Invest / Valuation Strategies
|Subject: Re: Discounted Cash Flow Model - Negative FCF||Date: 4/26/2011 12:07 PM|
|Author: atta9508||Number: 1647 of 1675|
It has been awhile since I have posted to this thread. I have been reading up on Damodaran and playing around with one of his models. I have gone through the balance sheet, cashflow, and income statement for a company, read through their annual report a bit (this part is a bit painful) and started playing with the model. I think I have started to settle on the inputs I have chosen. I have no idea if my conclusion is correct of the input assumptions are reasonable. Can anybody recommend a way to check these assumptions to confirm if they are reasonable?
The company I decided to value is Sunpower. Currently I value them at about 4x's what they are trading. Makes me a bit nervous. Here is what I have done so far. Using a high growth model using FCFF.
1. Forecasting Revenue based on growth estimate.
2. Growth estimate is based on two calculations. 1) Assuming constant ROC and reinvestment and 2) My estimate of the market in 2015 and what share they will have.
3. Capitlized R&D
4. Brought operating leases into Debt.
5. Estimate a Beta based on competetors and risk.
6. Included equity options in the valuation
Areas I am not sure about.
1. Estimating Cap Ex in the future. Should I be using current WC as function of Revenues for future cap ex or should I provide an estimate. Not real comfortable with what this number should be or how I determine a reasonable one.
2. Operating Margin. What I ended up doing was using an average operating margin for 6 companies. Again I don't know enough about companies to know what is reasonable
3. Debt to Capital Ratio. Absolutely clueless what I should use for stable growth. The number has a large impact on the valuation. Currently using 36.3% based on my estimate for the current period.
Any suggestions would be appreciated. I realize that a paragraph is not going to give enough information for people to comment on my approach. I mainly want to see what I can do to verify my assumptions.
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