1

DCF Valuation
1

User's guide

1. Plug the cost of capital and the perpetual growth rate. Choose the perpetual growth rate carefully. A rate supe
rate of the economy as a whole
2. Complete the business plan
3. Plug the normalised cash flow assumptions
Plug the numbers in the yellow cells only
2

Main assumptions
Weighted Average Cost of Capital
Perpetual Growth Rate

10.0%
1.5%

Simplified Business Plan

In EUR M

2002

2003e

Profit and loss statement

Turnover
EBITDA
- Depreciation and amortization
= EBIT

5,000
675
(238)
437

5,250
735
(250)
485

2,500
500
3,000

2,625
525
3,150

Balance Sheet
Fixed assets
+ Working Capital
= Capital Employed

Financial ratios and normalised cash flow assumptions

2002
Growth rate
EBITDA Margin
EBIT Margin
After tax EBIT Margin (tax rate of 35%)
After tax return on capital employed (tax rate of 35%)
Fixed assets / Turnover ratio
Working capital / Turnover ratio

13.5%
8.7%
5.7%
9.5%
50.0%
10.0%

2003e
5.0%
14.0%
9.2%
6.0%
10.0%
50.0%
10.0%

Asset turnover

1.7x

1.7x

(1) Be careful ! An after tax return on capital employed significantly greater than the cost of capital is not realistic

Free cash flows calculation

In EUR M

2002

EBIT
- Corporate income tax (35%)
- Depreciation and amortization
- Change in working capital
- Capital expenditures

485
(170)
250
(25)
(375)

Free cash flow

2003e

165

Free cash flows present value

In EUR M

2002

Discounting factor
Free cash flow present value
Terminal value
Total present value

2003e
0.91
150

3,617

al growth rate carefully. A rate superior to 3% is not realistic as it is greater than the long-term growth

2004e

2005e

2006e

2007e

2008e

2009e

Normalised

5,513
786
(255)
531

5,788
839
(261)
578

5,962
879
(270)
609

6,141
921
(280)
641

6,325
965
(295)
670

6,420
995
(310)
685

6,516
1,010
(315)
695

2,757
551
3,308

2,894
579
3,473

2,981
596
3,577

3,071
614
3,685

3,163
632
3,795

3,210
642
3,852

3,258
652
3,910

2004e
5.0%
14.3%
9.6%
6.3%
10.4%
50.0%
10.0%

2005e
5.0%
14.5%
10.0%
6.5%
10.8%
50.0%
10.0%

2006e
3.0%
14.7%
10.2%
6.6%
11.1%
50.0%
10.0%

2007e
3.0%
15.0%
10.4%
6.8%
11.3%
50.0%
10.0%

2008e
3.0%
15.3%
10.6%
6.9%
11.5%
50.0%
10.0%

2009e
1.5%
15.5%
10.7%
6.9%
11.6%
50.0%
10.0%

Normalised
1.5%
15.5%
10.7%
6.9%
11.6%
50.0%
10.0%

(1)

1.7x

1.7x

1.7x

1.7x

1.7x

1.7x

1.7x

an the cost of capital is not realistic in the long run, as it represents the return the company will continue to generate to infinity

2004e

2005e

2006e

2007e

2008e

2009e

Normalised

531
(186)
255
(26)
(387)

578
(202)
261
(28)
(399)

609
(213)
270
(17)
(357)

641
(224)
280
(18)
(370)

670
(235)
295
(18)
(387)

685
(240)
310
(10)
(358)

695
(243)
315
(10)
(363)

188

210

292

309

326

388

394

2004e
0.83
155

2005e
0.75
158

2006e
0.68
199

2007e
0.62
192

2008e
0.56
184

2009e
0.51
199
2,380

Normatif

to generate to infinity