# 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.

- Topic: Finance & Accounting
- Framework: RTF
- Level: Standard
- Tags: Finance, Coding, Analyze, Fill-in Template
- Source: https://www.thinkwithprompt.com/prompts/sanity-check-a-discounted-cash-flow-valuation

## Prompt

```text
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.
```

## What to fill in

- perpetual growth rate or exit multiple
- DATA
- CONFIRM SOURCE

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