DCF Series: Putting it all together
In this post, we combine all of the steps from the previous posts to arrive at a share price based on our valuation of the target company.
Comparing this price to the current trading price gives you an idea of whether it makes sense to buy (i.e. if it's trading at a discount to its value) — or not.
This is part of the DCF Valuation series; if you haven't read any of the previous posts, start here.
Let's recap where we are:
- Present Value of all Future Cash Flows = $580,350
- Present Value of the Terminal Value = $306,726
To find the value of a single SFIX share, we follow the following steps:
1. Add present value of future cash flows to the terminal value
$$\text{Present Value} = $580,350 + $306,726 = $887,076$$
2. Subtract the net debt from the result (cash - debt)
To find the net debt, we subtract the debt that the company has from the cash on hand. You can find the cash on hand in the Balance Sheet, and the debt we already retrieved earlier.
$$\text{Net Debt} = $143,455 - $164,508 = -$21,053$$
We then subtract this result from the present value to get the true Enterprise Value:
$$\text{Enterprise Value} = \text{Present Value} - \text{Net Debt} = $887,076 - $21,053 = $866,023$$
3. Divide the result by the number of outstanding shares
Shares outstanding is 62,902, per their latest quarterly filing.
The target share price is thus:
$$\text{Share Price} = $866,023 / 62,902 = $13.77/share$$
And there we are! Phew, we've gone through the entire process — from start to finish of finding exactly how much a company is worth today, based on their fundamentals (the present value of their future cash flows).
You'll find all of the calculation I made available in this handy 🔗 Google Sheet.