We currently support two valuation models: Price Earnings (PE) Model and Cash Flow Model
Price Earnings(PE) Model:
- PE Model is based on estimated revenue, net earnings and PE multiple after the next 10 years.
- Application calculates and selects an estimated growth rate, net income/revenue ratio and future PE value based on past 10 years.
- Future Market value at 10 years is calculated using a projected PE for the 10th year.
- Revenue Growth Rates, Net Income/Revenue as well as PE multiple for 10th year can be changed by the user.
- Internal Revenue Rate (IRR) or annual return for the next 10 years is calculated using the current share price and estimated share price in the 10th year.
Cash Flow Model
- Cash Flow Model considers the estimated free cash flows in the future and calculates the IRR rate.
- Free Cash Flows for the next 10 years are calculated.
- Terminal Value is calculated for the terminal growth years after that 10th year.
- For terminal growth years of 30, terminal value is calculated for 30 years as well as 20 and 40 years.
- IRR Rate is the discount rate that is used to calculate the PV of future cash flows as well as the terminal value.
- Sum of all the present value of future cash flows equals the current market value.
- Free Cash Flow/Sale (%), Terminal Growth Rate and Terminal Years are user customizable.
Please review Risk Level to understand how it is calculated.