Tag
DCF
6 pages across every collection.
Article··2 min
DCF valuation explained
Discounted cash flow without the spreadsheet mysticism — what the discount rate actually represents, why terminal value is usually most of the answer, and when a DCF is worth building.
Answer··1 min
What is terminal value?
Everything beyond the forecast horizon, compressed into one number. In an SME discounted cash flow it is usually 60 to 75 percent of the total valuation.
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Which valuation method is most accurate?
None of them. Accuracy is the wrong frame — the useful method is the one your buyer will use, and for most SME transactions that is an earnings multiple.
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Why do valuation methods give different answers?
Because each encodes different assumptions about the future. The gap is not an error to average away — it is the most useful output of the whole exercise.
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What discount rate should I use?
18 to 25% for an owner-managed SME. Below 12% implies a predictability most small businesses do not have; above 30% usually means the forecast is the problem, not the rate.
Answer··1 min
What is a DCF valuation?
A method that forecasts future cash flows and reduces each year by a discount rate reflecting risk. For SMEs, terminal value is usually 60–75% of the answer.