DCF method is flawed, except that it is better than all the other methods. All other methods try to guess the information that would be produced by DCF then why not do actual DCF.
Just one example:
Using reverse DCF when one assigns a PE after 3-5 years. On what basis does one arrive at the future PE. People say look for similar companies. Picking another company as similar is another guess. So when one tries to use simpler method one relies on very broad assumptions which can have big variation valuation.
The idea of DCF is really to get over complexity of multiple time series numbers (growth, hurdle) which cannot be intuitively calculated using one’s broad judgement – unless one is a good mathematician.
| Subscribe To Our Free Newsletter |
