NasdaqCM:EZGO Discounted Cash Flow November 23rd 2021 Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. Compared to the current share price of US$2.4, the company appears around fair value at the time of writing. In the final step we divide the equity value by the number of shares outstanding. The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$28m. We discount the terminal cash flows to today's value at a cost of equity of 6.9%. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.0%. The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. Present Value of 10-year Cash Flow (PVCF) = US$10m ("Est" = FCF growth rate estimated by Simply Wall St) Present Value ($, Millions) Discounted 6.9% We do this to reflect that growth tends to slow more in the early years than it does in later years.Ī DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. In the first stage we need to estimate the cash flows to the business over the next ten years. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth.
Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.Ĭompanies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. This will be done using the Discounted Cash Flow (DCF) model. (NASDAQ:EZGO) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value.