What goes into a business valuation?
Change the assumptions. Watch the effect. Understand how growth, capital needs and risk interact in a classic DCF model.
Fictional businesses, freely adjustable assumptions. Results explain a method; they do not value specific stocks or provide personal investment advice.
Why fictional examples?
Fictional examples let you explore growth, margins and financing costs independently. They are designed to explain classical valuation methods.
Choose a learning example
All figures are invented. The examples illustrate different business models, not real companies or industry forecasts.
Your assumptions
Move the sliders or enter numbers directly. All amounts are in millions of one consistent currency of your choice.
Build WACC from financing costs
An optional helper with fictional starting values as well. No current market data. The tax rate comes from your assumptions above.
Cost of equity = risk-free rate + beta × equity risk premium. WACC = equity weight × cost of equity + debt weight × cost of debt × (1 − tax rate).
The effect of your assumptions
From revenue to free cash flow
Ten model years · operating profit after tax less additional investment · millions
How sensitive is the result?
Implied equity value at different capital costs and long-term growth rates. Growth also changes the transition over the ten model years. The outline marks your input. These are not probabilities.
“—” means outside the learning range (parameter limits, WACC ≤ growth or ROIC ≤ growth).
Inspect all ten years and the terminal value
Understand the calculation
1. Develop the business
Revenue growth transitions linearly from the starting rate in year 1 to the long-term rate in year 10. The operating margin reaches its target in year 5 and stays constant thereafter.
2. Deduct capital needs
Operating profit less tax gives NOPAT. Additional revenue requires capital: revenue increase divided by sales/capital. Falling revenue does not automatically release or liquidate capital in this model.
3. Discount cash flows
Free cash flow = NOPAT − additional investment. Each annual amount is discounted to today using WACC. Cash flows are assumed to occur at year-end.
4. Beyond year 10
From year 11 onward, growth and the target margin stay constant, with a separate long-term ROIC. Terminal value is NOPAT₁₁ × (1 − g/ROIC) ÷ (WACC − g). It is also discounted for ten years.
What this simplified model leaves out
The three examples and all parameter ranges are solely for learning. Among other things, the model omits business segments, exceptional items, tax loss carryforwards, dilution, options, detailed balance-sheet changes and insolvency proceedings. No tax refund is assumed on operating losses. Investment during the first ten years and in the terminal period uses different simplifications, so a discontinuity may occur. A negative implied equity value is shown, but does not mean personal liability or an actual negative share price. Results are conditional calculations, not valuation opinions.