The Art Of Normalization In Business Valuation

Law360, New York (March 29, 2016, 10:52 AM EDT) -- Under the discounted cash flow method, the enterprise value of a firm is calculated as equal to the sum of its expected future unlevered free cash flows, discounted to present value using a risk-adjusted discount rate. Application of the discounted cash flow method can therefore be thought of as requiring three steps: (1) the projection of earnings and related cash flows over a discrete, finite projection period, perhaps five years, and for the year immediately following, which is used to calculate a terminal value; (2) an estimate of the expected rate(s) at which the firm’s earnings and cash flows will grow...

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