Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Bad investing information/advice on the net contest -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (179)	12/20/1999 5:28:00 PM
From: The Other Analyst	Read Replies (1) \| Respond to of 214

I'll take exception to a few of your points. And by the way, thanks for your post. First, you imply you don't like to use a terminal value. If you are doing a DCF valuation, you only have two choices: arrive at a terminal value, or run the projections out far enough so that the terminal value does not matter because after you go out some 75 or 100 years the present value is so small that it does not matter what you assume. Are you saying you prefer to run projections out until the Terminal value does not matter? Second, I have a real problem with the term "free cash flow" because it means so many different things to people. People do agree that FCF is in part net income plus depreciation plus deferred taxes minus at least some capital spending. But they differ on whether it is before or after ALL capital spending, dividends, debt payment or net new borrowing, changes in working capital, and all the other "Other" items on a cash flow statement. Absent consensus on free cash flow, I consider the concept dangerous. Third, on the topic of discount rate. I think the discount rate ought to be varied depending on the risk profile of the company in your projections. A company in its "hypergrowth" phase would have a higher risk premium than it would when it has reached its mature stage. So the discount rate should vary over time. I like to add a line to the spreadsheet with a "cumulative discount factor". Each year's cash flow can be brought back to the present value by applying the cumulative discount factor to it.