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DCF Valuation: FCF and EVA Models

DCF Valuation: FCF and EVA Models. James L. Grant, Ph.D. JLG Research jim@jlgresearch.com. FCF and EVA Valuation. Free Cash Flow Formula Generating Cash Flow Estimates Valuation of Cash Flows Cost of Capital Variation EVA Valuation. EVA Valuation Model. Economic Profit Formula

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DCF Valuation: FCF and EVA Models

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  1. DCF Valuation: FCF and EVA Models James L. Grant, Ph.D. JLG Research jim@jlgresearch.com

  2. FCF and EVA Valuation Free Cash Flow Formula Generating Cash Flow Estimates Valuation of Cash Flows Cost of Capital Variation EVA Valuation

  3. EVA Valuation Model Economic Profit Formula Forecasting Economic Profit NPV Valuation of EP Cost of Capital Variation Standard Accounting Adjustments

  4. Standard EVA Accounting Adjustments • Operating leases • LIFO Reserve • Research and Development • Goodwill Amortization • Special items (restructuring costs) • (typically cited in CFA program)

  5. JLG Research Disclosed versus Basic EVADow Jones Industrials

  6. Illustration of Multiple Regression Analysis Top 50 US Wealth Creators (And Destroyers)

  7. NPV/Cap=a + b times EVA/Cap Decileb (slope)R-Squared 1 18.57 67.37% 5 11.72 39.74% 6 2.99 10.57% 10 0.46 7.47% Source: J. Grant, Foundations of Economic Value Added

  8. Thank you!

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