ANALYSISM24

Valuation Models: DCF and Relative

Build objective valuation models for Indian companies using discounted cash flows and relative value comparisons.

Learning Goals

  • Construct a simple DCF model using cash flow projections.
  • Understand relative valuation with PE, PB, and EV/EBITDA.
  • Learn margin of safety and sensitivity analysis.

Core Concepts

Discounted Cash Flow (DCF)
Beginner

DCF values a business as the present value of future cash flows, discounted by a required rate of return.

Relative Valuation
Beginner

Compare a company’s multiples to peers and historical averages to gauge market expectations.

Margin of Safety
Beginner

Buy only when the intrinsic value is notably higher than the market price to protect against forecast errors.

Indian Market Context

Indian analysts often use earnings growth, return on equity, and conservative discount rates when valuing cyclical and commodity companies.

Hands-On Calculators

Future Value Calculator
Future Value₹3,10,585

Gain: ₹2,10,585

Behavioral Insight

🧠 OVERCONFIDENCE IN FORECASTS: Investors are too precise with future estimates, ignoring uncertainty in cash flow projections.

From History

Valuation Models: DCF and Relative

Investors who used conservative valuations during the 2013 taper tantrum avoided buying overvalued companies that fell sharply.

Take the Quiz

Module Quiz
A margin of safety is best described as:
DCF valuation is useful even with conservative growth assumptions.
Relative valuation compares a company using: