The second part of my valuation series is about one of the methods under the income approach, the discounted cash flow method. In this post, I will be showing you how to create a model from scratch. This model is not meant to teach you any in-depth theory on why certain decisions are made within the DCF, but rather just give a basic understanding of all the moving parts. I also suggest you use this time to use some techniques learned in my “Stop Using Your Mouse” post.

Follow the instructions on the “Instructions” tab while building in the “Build Here” tab. I have preset the layout of the model and some of the preliminary numbers. Your job will be to take the model from 2013 through the terminal year.

This is a basic model. I realize for many of you this is extremely easy. However, some monkeys, young or old, can use this to sharpen their skillset prior to entering a BB. The ability to build this and feel comfortable moving around in the model will be very helpful in your career.

In future posts, I will go more in-depth on the actual theory behind certain variables in the model, as well as take a peek at different ways to come up with a WACC.

If anyone notices any errors in the model, please note in a comment! Thanks monkeys.

Also, if anyone has any helpful tips to add or questions, please leave a comment.