## about The discounted cash flow analysis

The objective of DCFHub is to perform a discounted cash flow analysis, using a standardized, mechanical methodology, for as many publicly traded companies as possible and present the results to you. We do this using publicly available consensus analyst growth estimates. By doing so we hope we can shed some light on how the market works and help investors develop winning strategies.

To perform a discounted cash flow analysis one needs two things:

1. An estimate of all future cash flows;

and

2. A discount rate.

Many investors get worked up about the difference between cash flows and earnings. Earnings in modern accounting were developed with the intention of smoothing out reported cash flows. Therefore, the total sum of a company's future cash flows is theoretically equal to the total sum of that company's future earnings. For the purposed of a DCF analysis, they are interchangeable terms.

Consensus analyst estimates of future earnings growth are compiled by services such as Capital IQ and Reuters and are readily available on investing sites such as Yahoo! finance, Google finance, and Finviz. These estimates are typically given as in terms of earnings per share.

The DCFHub DCF methodology begins by multiplying the forward EPS estimate by the five year consensus analyst growth estimate. While this method gives a reasonable approximation of the expected earnings, it should be noted that this is still DCFHub's approximation and NOT the exact forward consensus estimates. If you would like the more precise estimates, please consider subscribing to Capital IQ or Reuters.

There are numerous different techniques employed by analysts to calculate the terminal value of an company after the five year growth period. DCFHub simply assumes constant earnings at the fifth year level in perpetuity.

Why do we make this assumption? Because we have found that this simple assumption typically produces net present valuations (NPVs) that correlate better with actual trading prices across the universe of covered stocks than more exotic methods .

DCFHub utilizes a capital asset pricing model (CAPM). This means that the discount rate utilized for each stock is augmented by the beta of the individual equity.

DCFHub simplifies the CAPM by assuming that the risk-free rate of return is zero. After making this assumption, the appropriate discount rate for an equity becomes simply the expected rate of return for the overall market multiplied by the beta of that equity.

Since the expected rate of return for the overall market is the same for each stock, DCFHub is able to back-calculate it by finding the market discount rate that best centers the range of valuations. This market discount rate is reported weekly along with the resulting NPVs, and can be used as a macro indicator as it is theoretically equal to the long-term rate of return of the S&P 500 index.

Good luck!

To perform a discounted cash flow analysis one needs two things:

1. An estimate of all future cash flows;

and

2. A discount rate.

*Estimating Future Cash Flows*Many investors get worked up about the difference between cash flows and earnings. Earnings in modern accounting were developed with the intention of smoothing out reported cash flows. Therefore, the total sum of a company's future cash flows is theoretically equal to the total sum of that company's future earnings. For the purposed of a DCF analysis, they are interchangeable terms.

Consensus analyst estimates of future earnings growth are compiled by services such as Capital IQ and Reuters and are readily available on investing sites such as Yahoo! finance, Google finance, and Finviz. These estimates are typically given as in terms of earnings per share.

The DCFHub DCF methodology begins by multiplying the forward EPS estimate by the five year consensus analyst growth estimate. While this method gives a reasonable approximation of the expected earnings, it should be noted that this is still DCFHub's approximation and NOT the exact forward consensus estimates. If you would like the more precise estimates, please consider subscribing to Capital IQ or Reuters.

*Estimating Terminal Value*There are numerous different techniques employed by analysts to calculate the terminal value of an company after the five year growth period. DCFHub simply assumes constant earnings at the fifth year level in perpetuity.

Why do we make this assumption? Because we have found that this simple assumption typically produces net present valuations (NPVs) that correlate better with actual trading prices across the universe of covered stocks than more exotic methods .

*Determining the expected market rate of return*DCFHub utilizes a capital asset pricing model (CAPM). This means that the discount rate utilized for each stock is augmented by the beta of the individual equity.

DCFHub simplifies the CAPM by assuming that the risk-free rate of return is zero. After making this assumption, the appropriate discount rate for an equity becomes simply the expected rate of return for the overall market multiplied by the beta of that equity.

Since the expected rate of return for the overall market is the same for each stock, DCFHub is able to back-calculate it by finding the market discount rate that best centers the range of valuations. This market discount rate is reported weekly along with the resulting NPVs, and can be used as a macro indicator as it is theoretically equal to the long-term rate of return of the S&P 500 index.

Good luck!