Software Cash Flows

A method for determining the current value of a company using future cash flows adjusted for time value. The future cash flow set is made up of the cash flows within the determined forecast period and a continuing value that represents the cash flow stream after the forecast period.

Basic formula for firm valuation using DCF model

value of firm =

Process Data Diagram

The following diagram shows an overview of the process of company valuation. All activities in this model are explained in more detail in section 3: Using the DCF method.

Using the DCF Method

Determine Forecast Period

The forecast period is the time period of which the individual yearly cash flows are input to the DCF formula. Cash flows after the forecast period can only be represented by an fixed number such as annual growth rates. Discounted Cash Flow Analysis Calculator automatically displays cash flow analysis results for 5 different discount rates for each of the 14 cash flow series. There are no fixed rules for determining the duration of the forecast period.

Example:

‘MedICT’ is a medical ICT startup that has just finished their business plan. Their goal is to provide medical professionals with software solutions for doing their own bookkeeping. Their only investor is required to wait for 5 years before making an exit. Therefore MedICT is using a forecast period of 5 years.