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Investment Banking Series Post 5 Valuation, Part 2 DCF Valuation Discounted Cash Flows (DCF) analysis looks at the amount of cash the company generates and discounts it back from a fixed point in time (usually 5 or 10 years, depending on the sector) along with the terminal value. Specifically, company's Free Cash Flow is projected for every year of the valuation period, the terminal value is calculated for the last year of the valuation period and the sum of the two is discounted by the Weighted Average Cost of Capital (WACC) of the company. This process involves a lot of projections, and therefore requires very detailed understanding of company business, because in the end the valuation is determined by how accurate these estimates are. CFA prep guides (official guide, Schweser notes, etc.) provide in-detail explanation of how FCF is calculated and what can serve as a proxy for it, but in principle its formula is as follows: FCF = EBITDA - Tax Expenses - CAPEX - change i...

Investment Banking Series Post 4 Valuation, Part 1 1. What is it anyway? Valuation is the process of calculating and otherwise assessing the Enterprise Value (in case of equity) or any other appropriate metric to be used as a base for setting the fair price range for the offering. Along with the distribution network, the ability to produce the appropriate valuation is supposed to be the core expertise of an investment bank. There are books out there that would give you much detail on the valuation techniques. The one I would personally recommend is Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions . It's a step-by-step easy to follow practical description. I do not intend to go anywhere that far, and will just introduce the important concepts here. 2. The great myth and the not-so-impressive reality Valuation is often rumored to be a highly numerical and sophisticated procedure, both science and art, requiring in-depth understanding of financia...