#Pricing calculator free

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$564b. We discount the terminal cash flows to today's value at a cost of equity of 9.2%. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.1%.

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. We do this to reflect that growth tends to slow more in the early years than it does in later years.Ī DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars:

#Pricing calculator free

We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. To begin with, we have to get estimates of the next ten years of cash flows. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. View our latest analysis for Exxon Mobil Crunching The Numbers If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Exxon Mobil Corporation ( NYSE:XOM) as an investment opportunity by taking the expected future cash flows and discounting them to today's value. Our fair value estimate is 11% higher than Exxon Mobil's analyst price target of US$124 The projected fair value for Exxon Mobil is US$139 based on 2 Stage Free Cash Flow to EquityĮxxon Mobil's US$107 share price signals that it might be 23% undervalued