Finance Dcf

Contract

• Input: problem description and inputs defined by the skill body.
• Output: Markdown artifact with completed process steps.
• Side effects: none.
• Dependencies: none.
• Stop condition: all process steps executed; artifact saved with required sections.
• Risk: low.
• Boundary: produces reasoning artifact only; no system changes.

Discounted Cash Flow

Run a DCF — forecast FCF, choose WACC, compute terminal value — and deliver a valuation range with cross-checks and sensitivity.

When to use

• The user wants a DCF valuation for a company, project, or asset.
• A corporate valuation needs a foundational DCF alongside multiples.
• A project finance decision depends on a DCF output.

Process

1. Build the forecast

Produce explicit annual projections (typically 5–10 years):

• Revenue growth — justified by historicals, market size, pricing power.
• EBITDA margin — projected path with operating leverage reasoning.
• Capex and D&A — investment cycle and depreciation schedule.
• Working capital — as % of revenue with historical justification.
• Tax rate — effective vs statutory; deferred tax if relevant.
• FCF = EBIT(1−T) + D&A − Capex − ΔWC.

Completion criterion: FCF projection for each year; every line justified.

2. Choose WACC

Compute WACC:

• Cost of equity: CAPM with beta (levered, from comparables or fundamental), risk-free (sovereign yield), ERP.
• Cost of debt: pre-tax yield on debt, or risk-free + credit spread.
• Capital structure: market-value weights (not book); target vs current.
• Tax shield: WACC = Ke·E/V + Kd·D/V·(1−T).

State the source for beta, ERP, and risk-free rate.

Completion criterion: WACC computed; each component sourced.

3. Terminal value

• Gordon growth: TV = FCF_n(1+g)/(WACC−g); g tied to long-run nominal GDP / inflation.
• Exit multiple: TV = EBITDA_n × multiple; state the multiple and its justification.
• Report both; explain which you prefer and why.

Completion criterion: both TV methods computed; preferred method stated with justification.

4. Sensitivity and scenario analysis

Build a sensitivity table: WACC (rows) × terminal growth (cols). Also run:

• Base / Bear / Bull scenarios with explicit assumption differences.
• Break-even: what growth rate or margin makes NPV = 0?

Completion criterion: sensitivity table present; scenarios and break-even computed.

5. Cross-check

• Compare DCF to market price / EV: is there a premium or discount?
• Compare to multiples (EV/EBITDA, P/E) on the same forecast.
• Is the DCF sensitive to terminal value? If TV > 80% of EV, flag it.

Completion criterion: cross-check done; TV dominance flagged if >80%.

6. Deliver

Markdown artifact: forecast, WACC, terminal value, sensitivity, scenarios, cross-check, and valuation range with a note on reliability.

Completion criterion: range delivered; reliability and TV dominance flagged.