Dcf Model

DCF Model Builder

Overview

Institutional-quality DCF models for equity valuation following investment banking standards. Each analysis produces a detailed Excel model (with sensitivity analysis at bottom of DCF sheet).

Preflight: Dependency Check

Before starting, verify required libraries and tools are installed and install any that are missing.

python3 -c "import openpyxl" 2>/dev/null || python3 -m pip install openpyxl
command -v soffice >/dev/null 2>&1 || command -v libreoffice >/dev/null 2>&1 || ls /Applications/LibreOffice.app/Contents/MacOS/soffice >/dev/null 2>&1 || echo "WARNING: LibreOffice not found. Install: brew install --cask libreoffice (macOS) or apt install libreoffice (Linux). Required for scripts/recalc.py."

Important: Do not skip this step — scripts/recalc.py and scripts/validate_dcf.py need these tools to verify sensitivity tables and TV-as-%-of-EV sanity checks.

Scripts

• scripts/recalc.py — Force formula recalculation via headless LibreOffice. Run after building: python scripts/recalc.py <model.xlsx>
• scripts/validate_dcf.py — DCF-specific validation (terminal growth < WACC, WACC in 5-20% range, TV as 40-80% of EV, formula errors). Run after recalc: python scripts/validate_dcf.py <model.xlsx>

Tools

• Default to using all information provided by the user and MCP servers available for data sourcing.

Critical Constraints - Read These First

Environment: Office JS vs Python/openpyxl

• Office JS: Use range.formulas = [["=D19*(1+$B$8)"]] — never range.values for derived cells
• Python/openpyxl: Write ws["D15"] = "=D14*(1+Assumptions!$B$5)", then run recalc.py
• Office JS merged cell pitfall: Write value to top-left cell alone, then merge + format

Formulas Over Hardcodes (NON-NEGOTIABLE)

• Every projection/margin/discount factor/PV/sensitivity cell MUST be live Excel formula
• Only permitted hardcodes: (1) raw historical inputs, (2) assumption drivers, (3) current market data
• "If you catch yourself computing something in Python and writing the result — STOP"

Verify Step-by-Step With the User (DO NOT build end-to-end)

1. After data retrieval → confirm raw inputs
2. After revenue projections → confirm top line + growth rates
3. After FCF build → confirm FCF schedule logic
4. After WACC → confirm calculation + inputs
5. After terminal value + PV → confirm equity bridge
6. After sensitivity tables → final review

Sensitivity Tables

• Use ODD number of rows/columns (5×5 or 7×7)
• Center cell = base case (must equal model's actual implied share price)
• Highlight center cell with #BDD7EE + bold
• Populate ALL cells with full DCF recalculation formulas (75 total for 3 tables)
• NO placeholder text, NO linear approximations

Cell Comments

• Add AS each hardcoded value is created
• Format: "Source: [System/Document], [Date], [Reference], [URL]"
• Never defer to end or write "TODO: add source"

Model Layout Planning

• Define ALL section row positions BEFORE writing formulas
• Write ALL headers → section dividers → THEN formulas

DCF Process Workflow

Step 1: Data Retrieval and Validation

• Priority: MCP Servers → User-Provided Data → Web Search/Fetch
• Validation: net debt vs net cash, diluted shares, historical margins, growth rates, tax rate

Step 2: Historical Analysis (3-5 years)

• Revenue growth trends (CAGR), margin progression, capital intensity, WC efficiency, return metrics

Step 3: Build Revenue Projections

• Revenue(Year N) = Revenue(Year N-1) × (1 + Growth Rate)
• Three-scenario approach: Bear/Base/Bull
• Growth rates: Year 1-2 higher → Year 3-4 moderate → Year 5+ approaching terminal

Step 4: Operating Expense Modeling

• S&M, R&D, G&A — ALL percentages based on REVENUE, not gross profit
• Model operating leverage: % should decline as revenue scales

Step 5: Free Cash Flow Calculation

• EBIT → (-)Taxes → NOPAT → (+)D&A → (-)CapEx → (-)ΔNWC → Unlevered FCF

Step 6: Cost of Capital (WACC) Research

• CAPM: Cost of Equity = Risk-Free Rate + Beta × ERP
• After-Tax Cost of Debt = Pre-Tax × (1 - Tax Rate)
• WACC = (Ke × We) + (Kd × Wd)

Step 7: Discount Rate Application

• Mid-year convention: periods 0.5, 1.5, 2.5...
• Discount Factor = 1 / (1 + WACC)^Period

Step 8: Terminal Value Calculation

• Perpetuity Growth: TV = Terminal FCF / (WACC - g)
• Exit Multiple: TV = Final Year EBITDA × Exit Multiple
• Sanity check: TV should be 50-70% of EV

Step 9: Enterprise to Equity Value Bridge

• Sum PV FCFs + PV Terminal Value = EV
• EV - Net Debt = Equity Value
• Equity Value / Diluted Shares = Implied Price per Share

Step 10: Sensitivity Analysis

Three tables: (1) WACC vs Terminal Growth, (2) Revenue Growth vs EBIT Margin, (3) Beta vs Risk-Free Rate

section

• Scenario Block Selection: INDEX/consolidation column approach (not scattered IF statements)
• Revenue Projection: Reference consolidation column
• FCF Formula: Use consolidation columns with INDEX
• Cell Comment Format: exact source with date/URL
• Assumption Table Structure: 3 elements per block (header + column headers + data rows)
• Row Planning Process: headers first → dividers → formulas
• Sensitivity Table: 5×5 grid, symmetric axes, center = base case, formula in every cell

section

• WRONG: Linear approximations in sensitivity tables
• WRONG: Placeholder text instead of formulas
• WRONG: Missing cell comments
• WRONG: Formula row references off (write formulas before headers)
• WRONG: Single row per assumption across scenarios
• WRONG: No borders
• WRONG: Wrong font colors
• WRONG: OpEx based on Gross Profit instead of Revenue
• TOP 5 ERRORS: row references, comments, sensitivity, scenario references, borders

Excel Model Structure

Sheet Architecture: 2 sheets — DCF + WACC

Formatting Standards

• Font Colors: Blue=#0000FF (inputs), Black (formulas), Green=#008000 (cross-sheet)
• Fill Colors: Dark blue #1F4E79 (headers), Light blue #D9E1F2 (sub-headers), Light grey #F2F2F2 (inputs), White (formulas), Medium blue #BDD7EE (outputs)
• Borders: Thick 1.5pt (major sections), Medium 1pt (sub-sections), Thin 0.5pt (data tables)
• Number Formats: Years as text, % as 0.0%, Currency $#,##0, Negatives in parentheses

DCF Sheet Detailed Structure (Sections 1-5 + Sensitivity)

[Detailed row-by-row layout with formula patterns]

(-) Δ NWC,(XX),(XX),(XX),(XX),[=(E29-D29)$E$23],[=(F29-E29)$E$23],[=(G29-F29)*$E$23] % of ΔRev,XX%,XX%,XX%,XX%,[=$E$23],[=$E$23],[=$E$23] ,,,,,, Unlevered FCF,XXX,XXX,XXX,XXX,[=E57+E58-E60-E62],[=F57+F58-F60-F62],[=G57+G58-G60-G62] FCF Margin,XX%,XX%,XX%,XX%,[=E64/E29],[=F64/F29],[=G64/G29] Key Formula Pattern (FCF):

NOPAT = EBIT - Taxes: =E45 (+) D&A: =E29*$E$21 (consolidation column for D&A %) (-) CapEx: =E29*$E$22 (consolidation column for CapEx %) (-) Δ NWC: =(E29-D29)*$E$23 (consolidation column for NWC %) Unlevered FCF: =E57+E58-E60-E62 (NOPAT + D&A - CapEx - ΔNWC) Section 6: Discount Factors & Present Value

Section 6: Discount Rate & Present Value

Discount Period,,,,,0.5,1.5,2.5,3.5,4.5 Discount Factor,,,,,=[=1/(1+$E$25)^E67],[=1/(1+$E$25)^F67],[=1/(1+$E$25)^G67],[=1/(1+$E$25)^H67],[=1/(1+$E$25)^I67] PV of FCF,,,,,=[=E64E68],[=F64F68],[=G64G68],[=H64H68],[=I64*I68] Formula Structure:

Discount Period: 0.5, 1.5, 2.5, 3.5, 4.5 (mid-year convention) WACC reference: $E$25 = consolidation column pulling from scenario block via INDEX Discount Factor: =1/(1+$E$25)^[Period] PV of FCF: =[Unlevered FCF]*[Discount Factor] Sum of PV FCFs: =SUM(E69:I69) Section 7: Terminal Value

Section 7: Terminal Value Calculation

Terminal Value Section: Final Year FCF (Year 5),[=I64] Terminal Growth Rate,[=$E$24] (consolidation column) Terminal FCF,[=I64*(1+$E$24)]

Perpetuity Growth Method: Terminal Value,[=E74/($E$25-$E$24)] TV as % of EV,[=E75/E82] (sanity check: should be 50-70%)

Exit Multiple Method: Final Year EBITDA,[=I41] (Year 5 EBIT + D&A, or direct EBITDA) Exit Multiple,[from assumptions] Terminal Value (Exit),[=E78*E79]

PV of Terminal Value: Discount Factor (final period),[=1/(1+$E$25)^4.5] PV Terminal Value (Perpetuity),[=E75E81] PV Terminal Value (Exit),[=E80E81] Terminal Value Sanity Check:

TV as % of EV should be 50-70% If >75%: over-reliant on terminal assumptions If <40%: terminal assumptions may be too conservative Section 8: Valuation Summary

Section 8: Enterprise to Equity Value Bridge

VALUATION SUMMARY: (+) Sum of PV of Projected FCFs,[=SUM(E69:I69)] (+) PV of Terminal Value (Perpetuity),[=E82] (=) Enterprise Value (Perpetuity),[=E85+E86]

(+) PV of Terminal Value (Exit Multiple),[=E83] (=) Enterprise Value (Exit Multiple),[=E85+E89]

(-) Net Debt,[=$B$[net_debt_row]] (from Market Data section, blue input) (=) Equity Value (Perpetuity),[=E87-E91] (=) Equity Value (Exit Multiple),[=E90-E91]

(÷) Diluted Shares Outstanding (M),[=$B$[shares_row]] (from Market Data section) (=) Implied Price per Share (Perpetuity),[=E92/E94] (=) Implied Price per Share (Exit Multiple),[=E93/E94]

Current Stock Price,[=$B$[price_row]] (blue input) Implied Upside/(Downside) (Perpetuity),[=E95/E97-1] Implied Upside/(Downside) (Exit Multiple),[=E96/E97-1] Output Formatting:

Key output rows (EV, Equity Value, Implied Price): Medium blue fill #BDD7EE, bold Net Debt/Shares/Current Price: Blue font (hardcoded inputs) All calculated values: Black font Sensitivity Tables (Bottom of DCF Sheet)

Sensitivity Analysis — Three Tables

TABLE 1: WACC vs Terminal Growth Rate → Implied Share Price (Perpetuity)

• Row headers: WACC values [base-2Δ, base-Δ, base, base+Δ, base+2Δ] (e.g., 8.0%, 8.5%, 9.0%, 9.5%, 10.0%)
• Column headers: Terminal growth [base-2Δ, base-Δ, base, base+Δ, base+2Δ] (e.g., 2.0%, 2.5%, 3.0%, 3.5%, 4.0%)
• Each cell formula recalculates: Sum PV FCFs (using row WACC) + PV TV (using col growth & row WACC) - Net Debt / Shares
• Center cell = base case implied price, highlighted #BDD7EE + bold

TABLE 2: Revenue Growth vs EBIT Margin → Implied Share Price

• Row headers: Revenue growth rates (Year 1)
• Column headers: EBIT margins
• Each cell recalculates full DCF with substituted assumptions

TABLE 3: Beta vs Risk-Free Rate → Implied Share Price

• Row headers: Beta values
• Column headers: Risk-free rate values
• Each cell recalculates WACC → full DCF Implementation (programmatic loop):

Pseudocode for all 3 tables × 5×5 = 75 cells

wacc_range = [base_wacc - 0.01, base_wacc - 0.005, base_wacc, base_wacc + 0.005, base_wacc + 0.01] tg_range = [base_tg - 0.01, base_tg - 0.005, base_tg, base_tg + 0.005, base_tg + 0.01]

for r, wacc in enumerate(wacc_range): for c, tg in enumerate(tg_range): # Formula references row header ($A$row) for WACC, column header (col$header_row) for TG formula = "=(<sum_pv_fcfs_using_$A${row}_as_wacc> + <tv_using_{col}${header}_as_growth_and_$A${row}_as_wacc> - ) / " ws.cell(row=start_row+r, column=start_col+c).value = formula WACC Sheet Structure

WACC Sheet Layout

Section 1: Cost of Equity (CAPM) Risk-Free Rate (10Y Treasury),[blue input, with source comment] Equity Risk Premium,[blue input, typically 5.0-6.0%] Beta (5-year monthly),[blue input, with source comment] Cost of Equity,[formula: =Risk_Free + Beta × ERP]

Section 2: Cost of Debt Pre-Tax Cost of Debt,[blue input or =Interest Expense / Total Debt] Tax Rate,[blue input] After-Tax Cost of Debt,[formula: =Pre_Tax × (1 - Tax_Rate)]

Section 3: Capital Structure Current Share Price,[blue input] Diluted Shares Outstanding,[blue input] Market Cap,[formula: =Price × Shares] Total Debt,[blue input] Cash & Equivalents,[blue input] Net Debt,[formula: =Total Debt - Cash] Enterprise Value,[formula: =Market Cap + Net Debt]

Equity Weight,[formula: =Market Cap / EV] Debt Weight,[formula: =Net Debt / EV]

Section 4: WACC Calculation WACC,[formula: =(Cost_of_Equity × Equity_Weight) + (After_Tax_Cost_of_Debt × Debt_Weight)] Formatting:

All inputs: Blue font #0000FF with cell comments All formulas: Black font Cross-sheet references from DCF sheet: Green font #008000 Section headers: Dark blue fill #1F4E79, white text WACC output: Medium blue fill #BDD7EE, bold Special Cases:

Net Cash Position (Cash > Debt): Net Debt is negative, Debt Weight may be negative, WACC adjusts accordingly No Debt: WACC = Cost of Equity Quality Rubric (Full)

Quality Rubric

Every DCF model must maximize for:

1. Realistic revenue and margin assumptions based on historical performance
   • Growth rates justified by industry trends and company-specific drivers
   • Margin progression consistent with scale economics
2. Appropriate cost of capital calculation with proper CAPM methodology
   • Risk-free rate = current 10Y Treasury
   • Beta from reliable source (5-year monthly)
   • ERP within standard range (5.0-6.0%)
3. Comprehensive sensitivity analysis showing valuation ranges
   • Three 5×5 tables, all 75 cells with live formulas
   • Center cell = base case, highlighted
4. Clear terminal value calculation with supporting rationale
   • Both perpetuity and exit multiple methods
   • TV as % of EV sanity check
5. Professional model structure enabling scenario analysis
   • Bear/Base/Bull with consolidation columns
   • Clean cell references, no scattered IF statements
6. Transparent documentation of all key assumptions
   • Cell comments on every hardcoded input
   • Source citations with dates and URLs