Ratio Analysis
Valuations
Charting Technique
- Denotes about the value of Free Cash Flow at the end of the Period
- Terminal Value denotes about the value of Business after PROJECTED CASH FLOW period
- It denotes about what is the firm's worth at the end of PROJECTION period
- The rational behind considering the last year is: Cashflows will stabilize and continue with the same forever
- This model assumed company projects cash flow at steady rate based on historical
- Growth rate: It always resides between Historical Inflation Rage and Historical GDP Growth Rate
- Max growth Rate is 5%
Terminal Value Method
FCF of the Last year of projections x (1 + Growth rate)
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(Discount rate –Growth rate)
Gordon Growth Model: