How to Calculate the Cost of Debt

Determining the value of a financial asset is part of the process of calculating the present value of future cash flows. To value a company, we need to have a sense of magnitude and sense of those cash flows, plus any risk associated with receiving that cash. Part of determining the future value of those […]

The 3 Inputs for the Cost of Equity Formula

The value of any financial asset is the present value of its future cash flows discounted to the present. That is the basis of any discounted cash flow model and part of the process for valuing any company. Part of that analysis determines the cost of capital or discounting factor of those cash flows. There […]

Making the Discount Rate Formula Simple – Explain it Like I’m a 7th Grader

To me, one of the hardest parts of understanding a DCF valuation was the discount rate. It didn’t help that the formula was complex. I’d like to make the discount rate simple, using simple words. Maybe if you can understand the basic concept of the discount rate, it will help with calculating one for yourself, […]

Calculating Intrinsic Value with a DCF Like Warren Buffett Would

“Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.”   Basehit Investing These thoughts come directly from page […]

DCF for Bank Valuation: Step-by-Step Guide with Real-Life Examples

Did you know that the financial industry makes up $8.81 trillion of the market cap of the stock market, which is 13% of the market, third-largest by market cap compared to tech and consumer discretionary. Most investors ignore or pass the financial industry by, largely because they don’t understand the industry or valuing those companies. […]

Valuing Young Companies: A Complete Guide Using a DCF (FCFF) Model

Valuing a young company is one of the more difficult tasks in valuation. Trying to pin a value on a young company, startup, or idea business is difficult because of little or no revenues and large operating losses. Other challenges are the short financial histories of young companies, plus the dependence on outside capital to […]

Building a DCF Using the Unlevered Free Cash Flow Formula (FCFF)

“Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” –Warren Buffett Cash is the lifeblood of all companies, and determining the fair value or intrinsic value is a matter of calculating what the cash flow of the future […]

Expect 4.6% Equity Returns According to the Grinold-Kroner Model

The Grinold-Kroner model can be used to estimate returns for a single stock, a sector, or the market in general and is a learning from CFA Level III on capital market expectations. Knowing the factors contributing to total expected returns in the Grinold-Kroner model can help investors understand what is driving their returns. In this […]

Using 65 Years of Statistics to Make an Intelligent Cash Flow Projection

In valuation, the name of the game is expected future cash flows. It’s not about the past, it’s about the future. So in trying to estimate the value of an asset, an intelligent cash flow projection is critical. And it’s rife with pitfalls. As we know, there’s a myriad of destructive biases and ideas that […]

How to Use Reinvestment Rate to Project Growth for Valuation

“Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” – Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter Finding companies that compound their returns on invested capital over long periods while growing simultaneously is the […]