
28 The Financial Times Guide to Corporate Valuation
The most important fundamental valuation
models
On the following pages, we will describe a number of different models.
Some can be used in many situations and others only in specific ones.
Valuation models based on cash flow
Discounted cash flow (DCF) model
In the discounted cash flow (DCF) model, you calculate the enterprise value
by estimating all future free cash flow streams and discount them back to
today using the appropriate cost of capital. Usually the weighted average
cost of capital (WACC) is used, which weighs the cost of equity with the
cost of debt. The DCF model is divided into