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How Do You Know If Your Dcf Is Too Dependent On Future Assumptions? |
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Answer» The "STANDARD" answer: if significantly more than 50% of the company's ENTERPRISE Value comes from its Terminal Value, your DCF is probably too dependent on future assumptions. In reality, almost all DCFs are "too dependent on future assumptions" - it's actually quite RARE to see a CASE where the Terminal Value is less than 50% of the Enterprise Value. But when it GETS to be in the 80-90% range, you know that you may need to re-think your assumptions. The "standard" answer: if significantly more than 50% of the company's Enterprise Value comes from its Terminal Value, your DCF is probably too dependent on future assumptions. In reality, almost all DCFs are "too dependent on future assumptions" - it's actually quite rare to see a case where the Terminal Value is less than 50% of the Enterprise Value. But when it gets to be in the 80-90% range, you know that you may need to re-think your assumptions. |
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