Dcf Model

DCF Model Builder

Overview

This skill creates institutional-quality DCF models for equity valuation following investment banking standards. Each analysis produces a detailed Excel model (with sensitivity analysis included at the bottom of the DCF sheet).

Tools

• fundamentals MCP: get_financial_statements, get_financial_ratios, get_growth_metrics, get_historical_valuation
• macro MCP: get_treasury_rates, get_market_risk_premium
• get_company_overview tool: analyst consensus, growth estimates, company profile
• User-provided data and web search/fetch as supplements

Critical Constraints - Read These First

These constraints apply throughout all DCF model building. Review before starting:

Sensitivity Tables:

• Populate ALL 75 cells (3 tables × 25 cells) with full DCF recalculation formulas
• Use openpyxl loops to write formulas programmatically
• NO placeholder text, NO linear approximations, NO manual steps required
• Each cell must recalculate full DCF for that assumption combination

Cell Comments:

• Add cell comments AS each hardcoded value is created
• Format: "Source: [System/Document], [Date], [Reference], [URL if applicable]"
• Every blue input must have a comment before moving to next section
• Do not defer to end or write "TODO: add source"

Model Layout Planning:

• Define ALL section row positions BEFORE writing any formulas
• Write ALL headers and labels first
• Write ALL section dividers and blank rows second
• THEN write formulas using the locked row positions
• Test formulas immediately after creation

Formula Recalculation:

• Run python .agents/skills/xlsx/scripts/recalc.py model.xlsx 30 before delivery
• Fix ALL errors until status is "success"
• Zero formula errors required (#REF!, #DIV/0!, #VALUE!, etc.)

Scenario Blocks:

• Create separate blocks for Bear/Base/Bull cases
• Show assumptions horizontally across projection years within each block
• Use IF formulas: =IF($B$6=1,[Bear cell],IF($B$6=2,[Base cell],[Bull cell]))
• Verify formulas reference correct scenario block cells

DCF Process Workflow

Execution pattern: build the DCF as a saved Python script (e.g., work/<task_name>/build_dcf.py) rather than inline ExecuteCode. Model building is iterative — you will debug formulas, tweak assumptions, and rerun. Writing to a file + running via Bash lets you Edit specific sections and rerun cheaply; resubmitting the whole openpyxl block inline on every iteration is wasteful.

Step 1: Data Retrieval and Validation

Fetch data from MCP servers, user provided data, and the web.

Data Sources:

• Financial statements (income/balance/cash flow): Use fundamentals MCP: get_financial_statements(symbol, 'all', 'annual', 5)
• Ratios and metrics: Use fundamentals MCP: get_financial_ratios(symbol)
• Growth rates: Use fundamentals MCP: get_growth_metrics(symbol)
• Risk-free rate / treasury yields: Use macro MCP: get_treasury_rates() -- use the 10Y rate
• Market risk premium: Use macro MCP: get_market_risk_premium()
• Analyst growth estimates / consensus: Use get_company_overview tool -- includes analyst consensus and growth estimates
• Historical valuation data: Use fundamentals MCP: get_historical_valuation(symbol)
• User-provided data: Historical financials from their research
• Web search/fetch: Current prices, beta, debt and cash when needed

Validation Checklist:

• Verify net debt vs net cash (critical for valuation)
• Confirm diluted shares outstanding (check for recent buybacks/issuances)
• Validate historical margins are consistent with business model
• Cross-check revenue growth rates with industry benchmarks
• Verify tax rate is reasonable (typically 21-28%)

Step 2: Historical Analysis (3-5 years)

Analyze and document:

• Revenue growth trends: Calculate CAGR, identify drivers
• Margin progression: Track gross margin, EBIT margin, FCF margin
• Capital intensity: D&A and CapEx as % of revenue
• Working capital efficiency: NWC changes as % of revenue growth
• Return metrics: ROIC, ROE trends

Create summary tables showing:

Historical Metrics (LTM):
Revenue: $X million
Revenue growth: X% CAGR
Gross margin: X%
EBIT margin: X%
D&A % of revenue: X%
CapEx % of revenue: X%
FCF margin: X%

Step 3: Build Revenue Projections

Methodology:

1. Start with latest actual revenue (LTM or most recent fiscal year)
2. Apply growth rates for each projection year
3. Show both dollar amounts AND calculated growth %

Growth Rate Framework:

• Year 1-2: Higher growth reflecting near-term visibility
• Year 3-4: Gradual moderation toward industry average
• Year 5+: Approaching terminal growth rate

Formula structure:

• Revenue(Year N) = Revenue(Year N-1) × (1 + Growth Rate)
• Growth %(Year N) = Revenue(Year N) / Revenue(Year N-1) - 1

Three-scenario approach:

Bear Case: Conservative growth (e.g., 8-12%)
Base Case: Most likely scenario (e.g., 12-16%)
Bull Case: Optimistic growth (e.g., 16-20%)

Step 4: Operating Expense Modeling

Fixed/Variable Cost Analysis:

Operating expenses should model realistic operating leverage:

• Sales & Marketing: Typically 15-40% of revenue depending on business model
• Research & Development: Typically 10-30% for technology companies
• General & Administrative: Typically 8-15% of revenue, shows leverage as company scales

Key principles:

• ALL percentages based on REVENUE, not gross profit
• Model operating leverage: % should decline as revenue scales
• Maintain separate line items for S&M, R&D, G&A
• Calculate EBIT = Gross Profit - Total OpEx

Margin expansion framework:

Current State → Target State (Year 5)
Gross Margin: X% → Y% (justify based on scale, efficiency)
EBIT Margin: X% → Y% (result of revenue growth + opex leverage)

Step 5: Free Cash Flow Calculation

Build FCF in proper sequence:

EBIT
(-) Taxes (EBIT × Tax Rate)
= NOPAT (Net Operating Profit After Tax)
(+) D&A (non-cash expense, % of revenue)
(-) CapEx (% of revenue, typically 4-8%)
(-) Δ NWC (change in working capital)
= Unlevered Free Cash Flow

Working Capital Modeling:

• Calculate as % of revenue change (delta revenue)
• Typical range: -2% to +2% of revenue change
• Negative number = source of cash (working capital release)
• Positive number = use of cash (working capital build)

Maintenance vs Growth CapEx:

• Maintenance CapEx: Sustains current operations (~2-3% revenue)
• Growth CapEx: Supports expansion (additional 2-5% revenue)
• Total CapEx should align with company's growth strategy

Step 6: Cost of Capital (WACC) Research

CAPM Methodology for Cost of Equity:

Cost of Equity = Risk-Free Rate + Beta × Equity Risk Premium

Where:
- Risk-Free Rate = Current 10-Year Treasury Yield (use macro MCP: `get_treasury_rates()`)
- Beta = 5-year monthly stock beta vs market index
- Equity Risk Premium = use macro MCP: `get_market_risk_premium()` (typically 5.0-6.0%)

Cost of Debt Calculation:

After-Tax Cost of Debt = Pre-Tax Cost of Debt × (1 - Tax Rate)

Determine Pre-Tax Cost of Debt from:
- Credit rating (if available)
- Current yield on company bonds
- Interest expense / Total Debt from financials

Capital Structure Weights:

Market Value Equity = Current Stock Price × Shares Outstanding
Net Debt = Total Debt - Cash & Equivalents
Enterprise Value = Market Cap + Net Debt

Equity Weight = Market Cap / Enterprise Value
Debt Weight = Net Debt / Enterprise Value

WACC = (Cost of Equity × Equity Weight) + (After-Tax Cost of Debt × Debt Weight)

Special Cases:

• Net Cash Position: If Cash > Debt, Net Debt is NEGATIVE
  • Debt Weight may be negative
  • WACC calculation adjusts accordingly
• No Debt: WACC = Cost of Equity

Typical WACC Ranges:

• Large Cap, Stable: 7-9%
• Growth Companies: 9-12%
• High Growth/Risk: 12-15%

Step 7: Discount Rate Application (5-10 Year Forecast)

Mid-Year Convention:

• Cash flows assumed to occur mid-year
• Discount Period: 0.5, 1.5, 2.5, 3.5, 4.5, etc.
• Discount Factor = 1 / (1 + WACC)^Period

Present Value Calculation:

For each projection year:
PV of FCF = Unlevered FCF × Discount Factor

Example (Year 1):
FCF = $1,000
WACC = 10%
Period = 0.5
Discount Factor = 1 / (1.10)^0.5 = 0.9535
PV = $1,000 × 0.9535 = $954

Projection Period Selection:

• 5 years: Standard for most analyses
• 7-10 years: High growth companies with longer runway
• 3 years: Mature, stable businesses

Step 8: Terminal Value Calculation

Perpetuity Growth Method (Preferred):

Terminal FCF = Final Year FCF × (1 + Terminal Growth Rate)
Terminal Value = Terminal FCF / (WACC - Terminal Growth Rate)

Critical Constraint: Terminal Growth < WACC (otherwise infinite value)

Terminal Growth Rate Selection:

• Conservative: 2.0-2.5% (GDP growth rate)
• Moderate: 2.5-3.5%
• Aggressive: 3.5-5.0% (only for market leaders)

Do not exceed: Risk-free rate or long-term GDP growth

Exit Multiple Method (Alternative):

Terminal Value = Final Year EBITDA × Exit Multiple

Where Exit Multiple comes from:
- Industry comparable trading multiples
- Precedent transaction multiples
- Typical range: 8-15x EBITDA

Present Value of Terminal Value:

PV of Terminal Value = Terminal Value / (1 + WACC)^Final Period

Where Final Period accounts for timing:
5-year model with mid-year convention: Period = 4.5

Terminal Value Sanity Check:

• Should represent 50-70% of Enterprise Value
• If >75%, model may be over-reliant on terminal assumptions
• If <40%, check if terminal assumptions are too conservative

Step 9: Enterprise to Equity Value Bridge

Valuation Summary Structure:

(+) Sum of PV of Projected FCFs = $X million
(+) PV of Terminal Value = $Y million
= Enterprise Value = $Z million

(-) Net Debt [or + Net Cash if negative] = $A million
= Equity Value = $B million

÷ Diluted Shares Outstanding = C million shares
= Implied Price per Share = $XX.XX

Current Stock Price = $YY.YY
Implied Return = (Implied Price / Current Price) - 1 = XX%

Critical Adjustments:

• Net Debt = Total Debt - Cash & Equivalents
  • If positive: Subtract from EV (reduces equity value)
  • If negative (Net Cash): Add to EV (increases equity value)
• Use Diluted Shares: Includes options, RSUs, convertible securities
• Other adjustments (if applicable):
  • Minority interests
  • Pension liabilities
  • Operating lease obligations

Valuation Output Format:

Valuation Component,Amount ($M)
PV Explicit FCFs,X.X
PV Terminal Value,Y.Y
Enterprise Value,Z.Z
(-) Net Debt,A.A
Equity Value,B.B
,,
Shares Outstanding (M),C.C
Implied Price per Share,$XX.XX
Current Share Price,$YY.YY
Implied Upside/(Downside),+XX%

Step 10: Sensitivity Analysis

Build three sensitivity tables at the bottom of the DCF sheet showing how valuation changes with different assumptions:

1. WACC vs Terminal Growth - Shows enterprise value sensitivity to discount rate and perpetuity growth
2. Revenue Growth vs EBIT Margin - Shows impact of top-line growth and operating leverage
3. Beta vs Risk-Free Rate - Shows sensitivity to cost of equity components

Implementation: These are simple 2D grids (NOT Excel's "Data Table" feature) with formulas in each cell. Each cell must contain a full DCF recalculation for that specific assumption combination. See Critical Constraints section for detailed requirements on populating all 75 cells programmatically using openpyxl.

This section contains all the CORRECT patterns to follow when building DCF models.

Scenario Block Selection Pattern - Follow This Approach

Assumptions are organized in separate blocks for each scenario:

CRITICAL STRUCTURE - Three rows per section header:

BEAR CASE ASSUMPTIONS (section header, merge cells across)
Assumption,FY1,FY2,FY3,FY4,FY5
Revenue Growth (%),12%,10%,9%,8%,7%
EBIT Margin (%),45%,44%,43%,42%,41%

BASE CASE ASSUMPTIONS (section header, merge cells across)
Assumption,FY1,FY2,FY3,FY4,FY5
Revenue Growth (%),16%,14%,12%,10%,9%
EBIT Margin (%),48%,49%,50%,51%,52%

BULL CASE ASSUMPTIONS (section header, merge cells across)
Assumption,FY1,FY2,FY3,FY4,FY5
Revenue Growth (%),20%,18%,15%,13%,11%
EBIT Margin (%),50%,51%,52%,53%,54%

Each scenario block MUST have a column header row showing the projection years (FY2025E, FY2026E, etc.) immediately below the section title. Without this, users cannot tell which assumption value corresponds to which year.

How to reference assumptions - Create a consolidation column:

1. Case selector cell (e.g., B6) contains 1=Bear, 2=Base, or 3=Bull
2. Create a consolidation column with INDEX or OFFSET formulas to pull from the correct scenario block
3. Projection formulas reference the consolidation column (clean cell references)
4. Each scenario block contains full set of DCF assumptions across projection years

Recommended consolidation column pattern (using INDEX): =INDEX(B10:D10, 1, $B$6)

NOT this - scattered IF statements throughout: =IF($B$6=1,[Bear block cell],IF($B$6=2,[Base block cell],[Bull block cell]))

The consolidation column approach centralizes logic and makes the model easier to audit.

Correct Revenue Projection Pattern

Create a consolidation column with INDEX formulas, then reference it in projections:

Step 1 - Consolidation column for FY1 growth: =INDEX([Bear FY1 growth]:[Bull FY1 growth], 1, $B$6)

Step 2 - Revenue projection references the consolidation column: Revenue Year 1: =D29*(1+$E$10)

Where:

• D29 = Prior year revenue
• $E$10 = Consolidation column cell for FY1 growth (contains INDEX formula)
• $B$6 = Case selector (1=Bear, 2=Base, 3=Bull)

This approach is cleaner than embedding IF statements in every projection formula and makes it much easier to audit which scenario assumptions are being used.

Correct FCF Formula Pattern

Use consolidation columns with INDEX formulas, then reference them in FCF calculations:

Consolidation column approach:

Item,Formula,Reference
D&A,=E29*$E$21,$E$21 = consolidation column for D&A %
CapEx,=E29*$E$22,$E$22 = consolidation column for CapEx %
Δ NWC,=(E29-D29)*$E$23,$E$23 = consolidation column for NWC %
Unlevered FCF,=E57+E58-E60-E62,E57=NOPAT E58=D&A E60=CapEx E62=Δ NWC

Each consolidation column cell contains an INDEX formula that pulls from the appropriate scenario block based on case selector. This keeps projection formulas clean and auditable.

Before writing formulas, confirm scenario block row locations and set up consolidation columns.

Correct Cell Comment Format

Every hardcoded value needs this format:

"Source: [System/Document], [Date], [Reference], [URL if applicable]"

Examples:

Item,Source Comment
Stock price,Source: get_company_overview 2025-10-12 Close price
Shares outstanding,Source: fundamentals MCP get_financial_statements FY2024
Historical revenue,Source: fundamentals MCP get_financial_statements FY2024
Beta,Source: get_company_overview 2025-10-12 5-year monthly beta
Risk-free rate,Source: macro MCP get_treasury_rates 2025-10-12 10Y yield
Consensus estimates,Source: get_company_overview analyst consensus

Correct Assumption Table Structure

CRITICAL: Each scenario block requires THREE structural elements:

1. Section header row (merged cells): e.g., "BEAR CASE ASSUMPTIONS"
2. Column header row showing years - THIS IS REQUIRED, DO NOT SKIP
3. Data rows with assumption values

Structure:

BEAR CASE ASSUMPTIONS (section header - merge across columns A:G)
Assumption,FY1,FY2,FY3,FY4,FY5
Revenue Growth (%),X%,X%,X%,X%,X%
EBIT Margin (%),X%,X%,X%,X%,X%
Terminal Growth,X%,,,,
WACC,X%,,,,

BASE CASE ASSUMPTIONS (section header - merge across columns A:G)
Assumption,FY1,FY2,FY3,FY4,FY5
Revenue Growth (%),X%,X%,X%,X%,X%
EBIT Margin (%),X%,X%,X%,X%,X%
Terminal Growth,X%,,,,
WACC,X%,,,,

BULL CASE ASSUMPTIONS (section header - merge across columns A:G)
Assumption,FY1,FY2,FY3,FY4,FY5
Revenue Growth (%),X%,X%,X%,X%,X%
EBIT Margin (%),X%,X%,X%,X%,X%
Terminal Growth,X%,,,,
WACC,X%,,,,

WITHOUT the column header row showing projection years (FY2025E, FY2026E, etc.), users cannot tell which assumption value corresponds to which year. This row is MANDATORY.

Then create a consolidation column (typically the next column to the right) that uses INDEX formulas to pull from the selected scenario block based on the case selector. This consolidation column is what your projection formulas reference.

Correct Row Planning Process

1. Write ALL headers and labels FIRST:

Row,Content
1,[Company Name] DCF Model
2,Ticker | Date | Year End
4,Case Selector
7,KEY ASSUMPTIONS
26,Assumption headers
27-31,Growth assumptions
...,...

2. Write ALL section dividers and blank rows

3. THEN write formulas using the locked row positions

4. Test formulas immediately after creation

Think of it like construction:

• Good: Pour foundation, then build walls (stable structure)
• Bad: Build walls, then pour foundation (walls collapse)

Excel version:

• Good: Add headers, then write formulas (formulas stable)
• Bad: Write formulas, then add headers (formulas break)

Correct Sensitivity Table Implementation

IMPORTANT: These are NOT Excel's "Data Table" feature. These are simple grids where you write regular formulas using openpyxl. Yes, this means ~75 formulas total (3 tables × 25 cells each), but this is straightforward and required.

Programmatic Population with Formulas:

Each sensitivity table must be fully populated with formulas that recalculate the implied share price for each combination of assumptions. Do not use Excel's Data Table feature (it requires manual intervention and cannot be automated via openpyxl).

Implementation approach - CONCRETE EXAMPLE:

Table Structure (5x5 grid):

WACC vs Terminal Growth,2.0%,2.5%,3.0%,3.5%,4.0%
8.0%,[B88 formula],[C88 formula],[D88 formula],[E88 formula],[F88 formula]
9.0%,[B89 formula],[C89 formula],[D89 formula],[E89 formula],[F89 formula]
...,...,...,...,...,...

Formula Pattern - Cell B88 (WACC=8.0%, Terminal Growth=2.0%):

The formula in B88 should recalculate the implied price using:

• WACC from row header: $A88 (8.0%)
• Terminal Growth from column header: B$87 (2.0%)

Recommended approach: Reference the main DCF calculation but substitute these values.

Example formula structure: =([SUM of PV FCFs using $A88 as discount rate] + [Terminal Value using B$87 as growth rate and $A88 as WACC] - [Net Debt]) / [Shares]

CRITICAL - Write a formula for EVERY cell in the 5x5 grid (25 cells per table, 75 cells total). Use openpyxl to write these formulas programmatically in a loop. Do NOT skip this step or leave placeholder text.

Python implementation pattern:

# Pseudocode for populating sensitivity table
for row_idx, wacc_value in enumerate(wacc_range):
    for col_idx, term_growth_value in enumerate(term_growth_range):
        # Build formula that uses wacc_value and term_growth_value
        formula = f"=<DCF recalc using {wacc_value} and {term_growth_value}>"
        ws.cell(row=start_row+row_idx, column=start_col+col_idx).value = formula

The sensitivity tables must work immediately when the model is opened, with no manual steps required from the user.

This section contains all the WRONG patterns to avoid when building DCF models.

WRONG: Simplified Sensitivity Table Approximations or Placeholder Text

Don't use linear approximations:

// WRONG - Linear approximation
B97: =B88*(1+(0.096-0.116))    // Assumes linear relationship

// WRONG - Division shortcut
B105: =B88/(1+(E48-0.07))      // Doesn't recalculate full DCF

Don't leave placeholder text:

// WRONG - Placeholder note
"Note: Use Excel Data Table feature (Data → What-If Analysis → Data Table) to populate sensitivity tables."

// WRONG - Empty cells
[leaving cells blank because "this is complex"]

Don't confuse terminology:

• ❌ "Sensitivity tables need Excel's Data Table feature" (NO - that's a specific Excel tool we can't use)
• ✅ "Sensitivity tables are simple grids with formulas in each cell" (YES - this is what we build)

Why these shortcuts are wrong:

• Linear approximation formulas don't actually recalculate the DCF - they just apply simple math adjustments
• The relationships are not linear, so the results will be inaccurate
• Placeholder text requires manual user intervention
• Model is not immediately usable when delivered
• Not professional or client-ready
• Empty cells = incomplete deliverable

Common rationalization to REJECT: "Writing 75+ formulas feels complex, so I'll leave a note for the user to complete it manually."

Reality: Writing 75 formulas is straightforward when you use a loop in Python with openpyxl. Each formula follows the same pattern - just substitute the row/column values. This is a required part of the deliverable.

Instead: Populate every sensitivity cell with formulas that recalculate the full DCF for that specific combination of assumptions

WRONG: Missing Cell Comments

Don't do this:

• Create all hardcoded inputs without comments
• Think "I'll add them later"
• Write "TODO: add source"
• Leave blue inputs without documentation

Why it's wrong:

• Can't verify where data came from
• Fails xlsx skill requirements
• Not audit-ready
• Wastes time fixing later

Instead: Add cell comment AS EACH hardcoded value is created

WRONG: Formula Row References Off

Symptom: The FCF section references wrong assumption rows: D&A: =E29*$E$34 // Should be $E$21, but referencing wrong row CapEx: =E29*$E$41 // Should be $E$22, but row shifted

Why this happens:

1. Formulas written first
2. Then headers inserted
3. All row references shifted
4. Now formulas point to wrong cells → #REF! errors

Instead: Lock row layout FIRST, then write formulas

WRONG: Single Row for Each Assumption Across Scenarios

Don't structure assumptions like this:

Assumption,Bear,Base,Bull
Revenue Growth FY1,10%,13%,16%
Revenue Growth FY2,9%,12%,15%

This vertical layout makes it hard to see the progression across years within each scenario.

Why it's wrong:

• Makes it difficult to see assumptions evolving across years within each scenario
• Harder to compare scenario assumptions across full projection period
• Less intuitive for reviewing scenario logic

Instead:

• Create separate blocks for each scenario (Bear, Base, Bull)
• Within each block, show assumptions horizontally across projection years
• This makes each scenario's assumptions easier to review as a cohesive set

WRONG: No Borders

Don't deliver a model without borders:

• No section delineation
• All cells blend together
• Hard to read and unprofessional

Why it's wrong:

• Not client-ready
• Difficult to navigate
• Looks amateur

Instead: Add borders around all major sections

WRONG: Wrong Font Colors or No Font Color Distinction

Don't do this:

• All text is black
• Only use fill colors (no font color changes)
• Mix up which cells are blue vs black

Why it's wrong:

• Can't distinguish inputs from formulas
• Auditing becomes impossible
• Violates xlsx skill requirements

Instead: Blue text for ALL hardcoded inputs, black text for ALL formulas, green for sheet links

WRONG: Operating Expenses Based on Gross Profit

Don't do this: S&M: =E33*0.15 // E33 = Gross Profit (WRONG)

Why it's wrong:

• Operating expenses scale with revenue, not gross profit
• Produces unrealistic margin progression
• Not how businesses actually operate

Instead: S&M: =E29*0.15 // E29 = Revenue (CORRECT)

TOP 5 ERRORS SUMMARY

1. Formula row references off → Define ALL row positions BEFORE writing formulas
2. Missing cell comments → Add comments AS cells are created, not at end
3. Simplified sensitivity tables → Populate all cells with full DCF recalc formulas, not approximations
4. Scenario block references wrong → Ensure IF formulas pull from correct Bear/Base/Bull blocks
5. No borders → Add professional section borders for client-ready appearance

In addition, be aware of these errors:

WACC Calculation Errors

• Mixing book and market values in capital structure
• Using equity beta instead of asset/unlevered beta incorrectly
• Wrong tax rate application to cost of debt
• Incorrect risk-free rate (must use current 10Y Treasury)
• Failure to adjust for net debt vs net cash position

Growth Assumption Flaws

• Terminal growth > WACC (creates infinite value)
• Projection growth rates inconsistent with historical performance
• Ignoring industry growth constraints
• Revenue growth not aligned with unit economics
• Margin expansion without operational justification

Terminal Value Mistakes

• Using wrong growth method (perpetuity vs exit multiple)
• Terminal value >80% of enterprise value (suggests over-reliance)
• Inconsistent terminal margins with steady state assumptions
• Wrong discount period for terminal value

Cash Flow Projection Errors

• Operating expenses based on gross profit instead of revenue
• D&A/CapEx percentages misaligned with business model
• Working capital changes not properly calculated
• Tax rate inconsistency between years
• NOPAT calculation errors

These errors are the most common. Re-read this section before starting any DCF build.

Excel File Creation

For all Excel formatting, number formats, and color standards, follow the guidelines in .agents/skills/xlsx/SKILL.md.

After generating Excel, run recalculation: python .agents/skills/xlsx/scripts/recalc.py model.xlsx 30

Quality Rubric

Every DCF model must maximize for:

1. Realistic revenue and margin assumptions based on historical performance
2. Appropriate cost of capital calculation with proper CAPM methodology
3. Comprehensive sensitivity analysis showing valuation ranges
4. Clear terminal value calculation with supporting rationale
5. Professional model structure enabling scenario analysis
6. Transparent documentation of all key assumptions

Input Requirements

Minimum Required Inputs

1. Company identifier: Ticker symbol or company name
2. Growth assumptions: Revenue growth rates for projection period (or "use consensus")
3. Optional parameters:
   • Projection period (default: 5 years)
   • Scenario cases (Bear/Base/Bull growth and margin assumptions)
   • Terminal growth rate (default: 2.5-3.0%)
   • Specific WACC inputs if not using CAPM

Excel Model Structure

Sheet Architecture

Create two sheets:

1. DCF - Main valuation model with sensitivity analysis at bottom
2. WACC - Cost of capital calculation

CRITICAL: Sensitivity tables go at the BOTTOM of the DCF sheet (not on a separate sheet). This keeps all valuation outputs together.

Formula Recalculation (MANDATORY)

After creating or modifying the Excel model, run recalculation:

python .agents/skills/xlsx/scripts/recalc.py [path_to_excel_file] [timeout_seconds]

Example:

python .agents/skills/xlsx/scripts/recalc.py $WORK_DIR/work/{task}/AAPL_DCF_Model.xlsx 30

Fix all errors and re-run until status is "success" before delivering the model. See .agents/skills/xlsx/SKILL.md for output format and error handling details.

Formatting Standards

For all Excel formatting, number formats, and color standards, follow the guidelines in .agents/skills/xlsx/SKILL.md.

After generating Excel, run recalculation: python .agents/skills/xlsx/scripts/recalc.py model.xlsx 30

DCF Sheet Detailed Structure

Section 1: Header

Row,Content
1,[Company Name] DCF Model
2,Ticker: [XXX] | Date: [Date] | Year End: [FYE]
3,Blank
4,Case Selector Cell (1=Bear 2=Base 3=Bull)
5,Case Name Display (formula: =IF([Selector]=1"Bear"IF([Selector]=2"Base""Bull")))

Section 2: Market Data (NOT case dependent)

Item,Value
Current Stock Price,$XX.XX
Shares Outstanding (M),XX.X
Market Cap ($M),[Formula]
Net Debt ($M),XXX [or Net Cash if negative]

Section 3: DCF Scenario Assumptions

Create separate assumption blocks for each scenario (Bear, Base, Bull) with DCF-specific assumptions (Revenue Growth %, EBIT Margin %, Tax Rate %, D&A % of Revenue, CapEx % of Revenue, NWC Change % of ΔRev, Terminal Growth Rate, WACC) laid out horizontally across projection years. Each block must include section header, column header row showing the projection years (FY1, FY2, etc.), and data rows. See <correct_patterns> section "Correct Assumption Table Structure" for the exact layout.

Section 4: Historical & Projected Financials

Reference a consolidation column (e.g., "Selected Case") that pulls from scenario blocks, not scattered IF formulas in every projection row.

Income Statement ($M),2020A,2021A,2022A,2023A,2024E,2025E,2026E
Revenue,XXX,XXX,XXX,XXX,[=E29*(1+$E$10)],[=F29*(1+$E$11)],[=G29*(1+$E$12)]
  % growth,XX%,XX%,XX%,XX%,[=E29/D29-1],[=F29/E29-1],[=G29/F29-1]
,,,,,,
Gross Profit,XXX,XXX,XXX,XXX,[=E29*E33],[=F29*F33],[=G29*G33]
  % margin,XX%,XX%,XX%,XX%,[=E33/E29],[=F33/F29],[=G33/G29]
,,,,,,
Operating Expenses:,,,,,,,
  S&M,XXX,XXX,XXX,XXX,[=E29*0.15],[=F29*0.14],[=G29*0.13]
  R&D,XXX,XXX,XXX,XXX,[=E29*0.12],[=F29*0.11],[=G29*0.10]
  G&A,XXX,XXX,XXX,XXX,[=E29*0.08],[=F29*0.07],[=G29*0.07]
  Total OpEx,XXX,XXX,XXX,XXX,[=E36+E37+E38],[=F36+F37+F38],[=G36+G37+G38]
,,,,,,
EBIT,XXX,XXX,XXX,XXX,[=E33-E39],[=F33-F39],[=G33-G39]
  % margin,XX%,XX%,XX%,XX%,[=E41/E29],[=F41/F29],[=G41/G29]
,,,,,,
Taxes,(XX),(XX),(XX),(XX),[=E41*$E$24],[=F41*$E$24],[=G41*$E$24]
  Tax rate,XX%,XX%,XX%,XX%,[=E43/E41],[=F43/F41],[=G43/G41]
,,,,,,
NOPAT,XXX,XXX,XXX,XXX,[=E41-E43],[=F41-F43],[=G41-G43]

Key Formula Pattern:

• Revenue growth: =E29*(1+$E$10) where $E$10 is consolidation column for Year 1 growth
• NOT: =E29*(1+IF($B$6=1,$B$10,IF($B$6=2,$C$10,$D$10)))

This approach is cleaner, easier to audit, and prevents formula errors by centralizing the scenario logic.

Section 5: Free Cash Flow Build

CRITICAL: Verify row references point to the CORRECT assumption rows. Test formulas immediately after creation.

Cash Flow ($M),2020A,2021A,2022A,2023A,2024E,2025E,2026E
NOPAT,XXX,XXX,XXX,XXX,[=E45],[=F45],[=G45]
(+) D&A,XXX,XXX,XXX,XXX,[=E29*$E$21],[=F29*$E$21],[=G29*$E$21]
    % of Rev,XX%,XX%,XX%,XX%,[=E58/E29],[=F58/F29],[=G58/G29]
(-) CapEx,(XX),(XX),(XX),(XX),[=E29*$E$22],[=F29*$E$22],[=G29*$E$22]
    % of Rev,XX%,XX%,XX%,XX%,[=E60/E29],[=F60/F29],[=G60/G29]
(-) Δ NWC,(XX),(XX),(XX),(XX),[=(E29-D29)*$E$23],[=(F29-E29)*$E$23],[=(G29-F29)*$E$23]
    % of Δ Rev,XX%,XX%,XX%,XX%,[=E62/(E29-D29)],[=F62/(F29-E29)],[=G62/(G29-F29)]
,,,,,,
Unlevered FCF,XXX,XXX,XXX,XXX,[=E57+E58-E60-E62],[=F57+F58-F60-F62],[=G57+G58-G60-G62]

Row reference examples (based on layout planning):

• $E$21 = D&A % assumption (consolidation column, row 21)
• $E$22 = CapEx % assumption (consolidation column, row 22)
• $E$23 = NWC % assumption (consolidation column, row 23)
• E29 = Revenue for year (row 29)
• E45 = NOPAT for year (row 45)

Before writing formulas: Confirm these row numbers match the actual layout. Test one column, then copy across.

Section 6: Discounting & Valuation

DCF Valuation,2024E,2025E,2026E,2027E,2028E,Terminal
Unlevered FCF ($M),XXX,XXX,XXX,XXX,XXX,
Period,0.5,1.5,2.5,3.5,4.5,
Discount Factor,0.XX,0.XX,0.XX,0.XX,0.XX,
PV of FCF ($M),XXX,XXX,XXX,XXX,XXX,
,,,,,,
Terminal FCF ($M),,,,,,,XXX
Terminal Value ($M),,,,,,,XXX
PV Terminal Value ($M),,,,,,,XXX
,,,,,,
Valuation Summary ($M),,,,,,
Sum of PV FCFs,XXX,,,,,
PV Terminal Value,XXX,,,,,
Enterprise Value,XXX,,,,,
(-) Net Debt,(XX),,,,,
Equity Value,XXX,,,,,
,,,,,,
Shares Outstanding (M),XX.X,,,,,
IMPLIED PRICE PER SHARE,$XX.XX,,,,,
Current Stock Price,$XX.XX,,,,,
Implied Upside/(Downside),XX%,,,,,

WACC Sheet Structure

COST OF EQUITY CALCULATION,,
Risk-Free Rate (10Y Treasury),X.XX%,[macro MCP: get_treasury_rates()]
Beta (5Y monthly),X.XX,[Input]
Equity Risk Premium,X.XX%,[macro MCP: get_market_risk_premium()]
Cost of Equity,X.XX%,[Calculated blue]
,,
COST OF DEBT CALCULATION,,
Credit Rating,AA-,[Yellow input]
Pre-Tax Cost of Debt,X.XX%,[Yellow input]
Tax Rate,XX.X%,[Link to DCF sheet]
After-Tax Cost of Debt,X.XX%,[Calculated blue]
,,
CAPITAL STRUCTURE,,
Current Stock Price,$XX.XX,[Link to DCF]
Shares Outstanding (M),XX.X,[Link to DCF]
Market Capitalization ($M),"X,XXX",[Calculated]
,,
Total Debt ($M),XXX,[Yellow input]
Cash & Equivalents ($M),XXX,[Yellow input]
Net Debt ($M),XXX,[Calculated]
,,
Enterprise Value ($M),"X,XXX",[Calculated]
,,
WACC CALCULATION,Weight,Cost,Contribution
Equity,XX.X%,X.X%,X.XX%
Debt,XX.X%,X.X%,X.XX%
,,
WEIGHTED AVERAGE COST OF CAPITAL,X.XX%,[Green output]

Key WACC Formulas:

Market Cap = Price × Shares
Net Debt = Total Debt - Cash
Enterprise Value = Market Cap + Net Debt
Equity Weight = Market Cap / EV
Debt Weight = Net Debt / EV
WACC = (Cost of Equity × Equity Weight) + (After-tax Cost of Debt × Debt Weight)

Sensitivity Analysis (Bottom of DCF Sheet)

TERMINOLOGY REMINDER: "Sensitivity tables" = simple 2D grids with row headers, column headers, and formulas in each data cell. NOT Excel's "Data Table" feature (Data → What-If Analysis → Data Table). You will use openpyxl to write regular Excel formulas into each cell.

Location: Rows 87+ on DCF sheet (NOT a separate sheet)

Three sensitivity tables, vertically stacked:

1. WACC vs Terminal Growth (rows 87-100) - 5x5 grid = 25 cells with formulas
2. Revenue Growth vs EBIT Margin (rows 102-115) - 5x5 grid = 25 cells with formulas
3. Beta vs Risk-Free Rate (rows 117-130) - 5x5 grid = 25 cells with formulas

Total formulas to write: 75 (this is required, not optional)

CRITICAL: All sensitivity table cells must be populated programmatically with formulas using openpyxl. DO NOT use linear approximation shortcuts. DO NOT leave placeholder text or notes about manual steps. DO NOT rationalize leaving cells empty because "it's complex" - use a Python loop to generate the formulas.

Table Setup:

1. Create table structure with row/column headers (the assumption values to test)
2. Populate EVERY data cell with a formula that:
   • Uses the row header value (e.g., WACC = 9.0%)
   • Uses the column header value (e.g., Terminal Growth = 3.0%)
   • Recalculates the full DCF with those specific assumptions
   • Returns the implied share price for that scenario
3. All cells must contain working formulas when delivered
4. Format cells with conditional formatting: Green scale for higher values, red scale for lower values
5. Bold the base case cell
6. Leave 1-2 blank rows between tables

No manual intervention required - the sensitivity tables must be fully functional when the user opens the file.

Case Selector Implementation

Three-Case Framework:

Bear Case

• Conservative revenue growth (low end of historical range)
• Margin compression or no expansion
• Higher WACC (risk premium increase)
• Lower terminal growth rate
• Higher CapEx assumptions

Base Case

• Consensus or management guidance revenue growth
• Moderate margin expansion based on operating leverage
• Current market-implied WACC
• GDP-aligned terminal growth (2.5-3.0%)
• Standard CapEx assumptions

Bull Case

• Optimistic revenue growth (high end of projections)
• Significant margin expansion
• Lower WACC (reduced risk premium)
• Higher terminal growth (3.5-5.0%)
• Reduced CapEx intensity

Formula Implementation:

DO NOT use nested IF formulas scattered throughout. Instead, create a consolidation column that uses INDEX or OFFSET formulas to pull from the appropriate scenario block.

Recommended pattern (using INDEX): =INDEX(B10:D10, 1, $B$6) where B10:D10 = Bear/Base/Bull values, 1 = row offset, $B$6 = case selector cell (1, 2, or 3)

Then reference the consolidation column in all projections: Revenue Year 1: =D29*(1+$E$10) where $E$10 is the consolidation column value for Year 1 growth.

This approach centralizes scenario logic, making the model easier to audit and maintain.

Deliverables Structure

File naming: [Ticker]_DCF_Model_[Date].xlsx

Two sheets:

1. DCF - Complete model with Bear/Base/Bull cases + three sensitivity tables at bottom (WACC vs Terminal Growth, Revenue Growth vs EBIT Margin, Beta vs Risk-Free Rate)
2. WACC - Cost of capital calculation

Key features: Case selector (1/2/3), consolidation column with INDEX/OFFSET formulas, color-coded cells, cell comments on all inputs, professional borders

Best Practices

Model Construction

1. Build incrementally: Complete each section before moving to next
2. Test as building: Enter sample numbers to verify formulas
3. Use consistent structure: Similar calculations follow similar patterns
4. Comment complex formulas: Add notes for unusual calculations
5. Build in checks: Sum checks and balance checks where applicable

Documentation

1. Document all assumptions: Explain reasoning behind key inputs
2. Cite data sources: Note where each data point came from
3. Explain methodology: Describe any non-standard approaches
4. Flag uncertainties: Highlight areas with limited visibility

Quality Control

1. Cross-check calculations: Verify math in multiple ways
2. Stress test assumptions: Run sensitivity to ensure model is robust
3. Peer review: Have someone else check formulas
4. Version control: Save versions as work progresses

Common Variations

High-Growth Technology Companies

• Longer projection period (7-10 years)
• Higher initial growth rates (20-30%)
• Significant margin expansion over time
• Higher WACC (12-15%)
• Model unit economics (users, ARPU, etc.)

Mature/Stable Companies

• Shorter projection period (3-5 years)
• Modest growth rates (GDP +1-3%)
• Stable margins
• Lower WACC (7-9%)
• Focus on cash generation and capital allocation

Cyclical Companies

• Model through economic cycle
• Normalize margins at mid-cycle
• Consider trough and peak scenarios
• Adjust beta for cyclicality

Multi-Segment Companies

• Separate DCFs for each business unit
• Different growth rates and margins by segment
• Sum-of-parts valuation
• Consider synergies

Troubleshooting

If you encounter errors or unreasonable results, read TROUBLESHOOTING.md for detailed debugging guidance.

Workflow Integration

At Start of DCF Build

1. Gather market data:

   • Use get_company_overview tool for stock price, beta, shares outstanding, analyst consensus
   • Use macro MCP: get_treasury_rates() for risk-free rate (10Y)
   • Use macro MCP: get_market_risk_premium() for equity risk premium
   • Use web search/fetch as supplement if needed

2. Gather historical financials:

   • Use fundamentals MCP: get_financial_statements(symbol, 'all', 'annual', 5) for income/balance/cash flow
   • Use fundamentals MCP: get_financial_ratios(symbol) for ratios
   • Use fundamentals MCP: get_growth_metrics(symbol) for growth rates
   • Request from user if specific data is needed

3. Begin model construction using the DCF methodology detailed in this skill

During Model Construction

1. Build Excel model using openpyxl with formulas (not hardcoded values)
2. Follow xlsx skill conventions for formula construction and formatting
3. Apply fill colors only if requested by user or if specific brand guidelines are provided

Before Delivering Model (MANDATORY)

1. Verify structure:
   • Scenario blocks for Bear/Base/Bull

…(truncated)