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Our typical valuation tools rely on either discounting future cash flows of the firm or using...

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Finance

Our typical valuation tools rely on either discounting futurecash flows of the firm or using multiples of EBITDA (based onobservable comparable firms).How well would these tools work if thefirm is many years away from positive free cash flow and currentlyhas negative EBITDA or has positive EBITDA but is expected to growmuch more quickly than observable comps?

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4.3 Ratings (609 Votes)
Present Value of the expected future cash flows is derived using a discount rateOne of the biggest challenge is finding the right discount rate and estimating the cash flows with certainty Now if the firm is many years away from positive cash flow and at present the cash flows are    See Answer
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Transcribed Image Text

Our typical valuation tools rely on either discounting futurecash flows of the firm or using multiples of EBITDA (based onobservable comparable firms).How well would these tools work if thefirm is many years away from positive free cash flow and currentlyhas negative EBITDA or has positive EBITDA but is expected to growmuch more quickly than observable comps?

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