Lesson

The DCF: a business is worth its future cash, discounted

One idea, four knobs, no magic.

A discounted cash flow model says a business is worth all the cash it will ever hand its owners, with distant cash worth less than near cash. Everything else is implementation detail. But the details are where the honesty lives.

Our growth-exit DCF has four visible knobs: the starting free cash flow (the median of the last three fiscal years, so one weird year can't hijack the estimate), the growth rate (the company's own filed history by default, clamped between 0% and 20%, never an analyst's dream), the discount rate (built in the open from the 10-year Treasury plus an equity risk premium, see the WACC lesson), and the terminal growth (2.5%, roughly nominal GDP, since no business outgrows the economy forever).

Every knob is visible, so you can disagree with any of them. You should. The model's job isn't to be right; it's to make the argument checkable. When our number differs from another site's, the difference is always in the knobs, and ours are all on the table.

Some businesses don't fit a DCF at all: banks (their cash flow isn't ours to define), REITs (their capex hides inside acquisitions), anything burning cash. There the ledger refuses and says why, instead of printing a confident wrong number.

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