DCF Valuation Framework & Model Documentation
Build defensible DCF models with explicit assumptions for M&A and fairness opinions
What You Can Do
You can build enterprise valuation models grounded in operational drivers rather than arbitrary growth assumptions. This skill guides you through documenting explicit assumptions, projecting cash flows tied to historical performance, calculating WACC, determining terminal value, and performing sensitivity and scenario analysis to quantify defensible valuation ranges. Your models will be audit-ready and capable of withstanding client questioning and legal challenge.
Features
tie all inputs to historical metrics and market data with clear audit trails
project revenue, margins, capital expenditure, and working capital from business fundamentals
determine discount rates using cost of equity, cost of debt, and capital structure inputs
apply perpetuity growth or exit multiple methods with sensitivity to long-term assumptions
quantify valuation impact across base case, upside, and downside scenarios
link income statement projections to cash flow statement and balance sheet changes
structure models for engagement letters, valuation reports, and board presentation deliverables
test model robustness to changes in key drivers, discount rates, and terminal assumptions
Example Output
Example 1: Software Company Acquisition Target
- Revenue projection: Historical CAGR 18%; model 15% year 1–3 (conservative), 10% years 4–5 based on market saturation analysis
- EBITDA margin: Improve from 22% to 28% over 5 years via operating leverage; document SG&A efficiency benchmarks
- WACC: 9.2% (cost of equity 11.5% using CAPM, cost of debt 6%, D/E ratio 0.3)
- Terminal value: 4.5% perpetuity growth rate; sensitivity range 3.5–5.5%
- Valuation range: Base case $245M; upside scenario $310M; downside scenario $195M
Example 2: Fairness Opinion Report Extract
- 5-year free cash flow projections: Years 1–5 aggregate to $87M after capex and tax
- Discount rate sensitivity: DCF value ranges $220M–$280M across WACC 8.5%–10.0%
- Terminal value sensitivity: Value $205M–$290M for perpetuity growth 3%–5%
- Conclusion: $250M proposed transaction price falls within reasonable valuation range
Example 3: Earnout Structure Analysis
- Base case DCF: $180M; earnout triggers if EBITDA exceeds $25M in year 3
- Probability-weighted scenarios: 60% base, 30% upside, 10% downside
- Expected earnout payout: $18M–$32M range depending on operational performance
What's Included
- SKILL.md instruction file: step-by-step DCF construction workflow with assumption documentation checklist
- DCF model template: Excel-ready projection framework with formula structures for 5-year forecasts and terminal value
- Assumption documentation template: assumption log linking each input to historical data source and market research
- WACC calculation worksheet: cost of equity (CAPM), cost of debt, and capital structure inputs with sensitivity
- Sensitivity and scenario analysis grid: one-way and two-way sensitivity tables for key drivers and discount rates
- Fairness opinion checklist: deliverable requirements, peer comparison, and litigation-defensibility review items
Who It's For
- Financial advisors and consultants building acquisition valuations for clients
- M&A professionals preparing fairness opinion reports and engagement letters
- Equity research analysts developing intrinsic value estimates for stock recommendations
- Corporate development teams evaluating internal acquisition targets or partnerships
- Transaction advisors structuring earnout and contingent payment provisions
Best For
- Private company valuations for M&A or shareholder disputes
- Fairness opinion engagements supporting board decisions and shareholder votes
- Structuring earnout, contingent payment, and hold-back provisions in transaction agreements
- Expert witness or litigation support valuations requiring defensible assumptions
- Equity research recommendations requiring intrinsic value analysis and valuation ranges
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