A Tool Kit for Discounted Cash Flow Valuation: Consistent and Inconsistent Ways to Value Risky Cash Flows

Andreas Schueler 1
  • 1 Universität der Bundeswehr München, Fakultät für Wirtschafts- und Organisationswissenschaften, Neubiberg, Germany
Andreas Schueler
  • Corresponding author
  • Universität der Bundeswehr München, Fakultät für Wirtschafts- und Organisationswissenschaften, Neubiberg, Germany
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Abstract

The DCF method or multiples are used to value companies in practice. Starting with the value additivity principle, the paper presents a general framework for DCF valuation. This framework allows defining stepwise and aggregated approaches to value risky cash flows and identifying inconsistent approaches. The framework helps to integrate sales, contribution margin, operating leverage, and financial leverage into valuation approaches and shows the assumptions implied when multiples are used.

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