Sanity-check a discounted cash flow valuation
A critical review of a DCF model's assumptions, math, and terminal value, with a valuation range you can defend.
The prompt
Review a discounted cash flow (DCF) valuation and tell me where it is weak.
What is being valued and why: [e.g. "acquisition target", "our company for a fundraise", "impairment test"]
Projection: [PASTE: revenue, EBITDA, capex, working capital, tax, unlevered free cash flow by year]
Discount rate and its build-up: [WACC components: risk-free rate, equity risk premium, beta, size premium, cost of debt, capital structure]
Terminal value method and inputs: [perpetual growth rate or exit multiple]
Comparable multiples, if any: [DATA]
Check:
1. Math: free cash flow formula, mid-year convention, discounting periods, net debt bridge to equity value.
2. Projection realism: growth and margins vs. history and peers, hockey-stick shapes, capex and working capital consistent with growth.
3. Discount rate: each component, and whether it matches the risk of the cash flows.
4. Terminal value: share of total value, growth rate vs. long-run inflation and GDP, implied exit multiple vs. comparables.
5. Consistency: same currency, nominal vs. real, tax rate.
Return:
- An issues table: Area | Issue | Effect on value (up/down, rough size) | Fix.
- A revised range using a sensitivity grid of discount rate vs. terminal growth (or exit multiple).
- 3 questions to put to whoever built the model.
Use only data I provide; do not supply market data as fact. Mark needed inputs [CONFIRM SOURCE]. This is analytical support, not a formal valuation opinion.
Highlighted [brackets] are blanks to replace with your own details.
Fill in the blanks and use this promptMore Finance & Accounting prompts
What to fill in
- perpetual growth rate or exit multiple
- DATA
- CONFIRM SOURCE
How this prompt is built
This prompt follows the RTF structure (Role, Task, Format). RTF tells the model who to be, what to do and what shape the answer should take. It is the quickest structure that still gives noticeably better results than a bare request.
Related prompts
- Write ALCO commentary on interest rate risk and net interest marginClear asset-liability committee commentary explaining NIM drivers, rate sensitivity, deposit behavior, and recommended actions.
- Write a corrective action plan for a government audit findingAn audit finding response and corrective action plan that addresses root cause, names owners and dates, and satisfies federal and state reviewers.
- Write an appeal letter for a denied medical claimA point-by-point appeal that answers the payer's denial reason with policy criteria and documentation, plus a check on whether a corrected claim is faster.
- Compare my booking channel costs and plan a shift to direct bookingsCalculates net revenue by distribution channel and gives a realistic plan to grow direct bookings.