⬅ Toolshelf

Intrinsic valuation

What is the cash worth, and what do you have to believe to get it?

01

Where the company stands today

Year zero. Everything forecast below grows out of these figures, so a mistake here scales through all ten years. Totals in millions; the share price in whatever unit the market quotes.

02

What the money costs

The discount rate is the price of risk, and it does more work than any other single number here. In the far future you assume the company becomes ordinary — so beta drifts to 1 and the terminal discount rate differs from the one you use for the next ten years. That's deliberate, not an error.

03

What you're assuming

Set where the company starts and where it ends up; the years in between fade in a straight line. Two anchors and a ruler beat ten guesses. The one that decides the answer is the return on capital in the final year — growth only creates value when the return beats the cost of capital. Set them equal and watch what happens.

04

The ten years

Reinvestment is what makes this honest. Growth has to be bought — the cash a company ploughs back is cash the owner never sees. A forecast that grows without reinvesting is a wish.

05

Everything after year ten

Two ways to close the model. The plain perpetuity carries the last year's cash flow forward for ever. The second asks what reinvestment that growth would actually need, and takes it out first. They only disagree when the return on capital after year ten differs from the year-ten figure — which is the whole point of setting it separately.

Terminal value
06

Where the value actually comes from

If almost all of it sits beyond year ten, your answer is a view on the terminal assumptions wearing a ten-year forecast as a disguise. Above roughly 80%, say so out loud rather than let a marker find it.

Present value, split by source
Years 1–10 Everything after
07

How wrong could you be

Move the discount rate and the long-run growth rate by half a point each way. If the answer swings across the market price inside that box, you don't have a valuation — you have a range, and you should present it as one.

Outlined cell is your current answer. Values are per share.

Value per share —
Against market —
Awaiting inputs
Fill in step 01 and step 02 to get a verdict.