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DCF Valuation: FCF and EVA Models

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DCF Valuation: FCF and EVA Models. James L. Grant, Ph.D. JLG Research [email protected] FCF and EVA Valuation. Free Cash Flow Formula Generating Cash Flow Estimates Valuation of Cash Flows Cost of Capital Variation EVA Valuation. EVA Valuation Model. Economic Profit Formula

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Presentation Transcript
slide1

DCF Valuation:

FCF and EVA Models

James L. Grant, Ph.D.

JLG Research

[email protected]

fcf and eva valuation

FCF and EVA Valuation

Free Cash Flow Formula

Generating Cash Flow Estimates

Valuation of Cash Flows

Cost of Capital Variation

EVA Valuation

slide9

EVA Valuation Model

Economic Profit Formula

Forecasting Economic Profit

NPV Valuation of EP

Cost of Capital Variation

Standard Accounting Adjustments

standard eva accounting adjustments
Standard EVA Accounting Adjustments
  • Operating leases
  • LIFO Reserve
  • Research and Development
  • Goodwill Amortization
  • Special items (restructuring costs)
  • (typically cited in CFA program)
illustration of multiple regression analysis

Illustration of Multiple Regression Analysis

Top 50 US Wealth Creators

(And Destroyers)

slide19

NPV/Cap=a + b times EVA/Cap

Decileb (slope)R-Squared

1 18.57 67.37%

5 11.72 39.74%

6 2.99 10.57%

10 0.46 7.47%

Source: J. Grant, Foundations of Economic Value Added

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