Discounted cash-flow (DCF) (dt. abgezinster payment stream) procedure for the valuation describes.

Overview

The Discounted cash-flow procedure (DCF) is methods for the evaluation of enterprises, whole projects or subprojects. As procedures they belong to the assessment of company value for the area of the financing and the audit (marketing and management). Important applications are during the evaluation of rent-contractual regulations with Overrent or Underrent.

Description of the individual procedures

The DCF procedures determine the future (also cash-flow, payment stream) and discount it by capital costs on the evaluation deadline. To become taxes which can be paid (body expensive or income tax) also into the evaluation included. In such a way determined bar value or also present value is the discounted cash flow. Typically the is divided into two phases; the first phase lasts 5-15 years, in the second phase either a separately determining residual value or an eternal pension is accepted. The capital costs are determined in practice very frequently with the help of a Kapitalmarktmodels (CAPM). Depending upon used tax a financing effect develops, in different DCF procedures settles (so body-expensively interest payments are deductible, which leads to an outside financing advantage) with that.

In principle three problems place themselves to a DCF procedure:

• The determination of the estimations for future periodic cash-flow.
• The inclusion of the taxes (body expensive or income tax).
• The determination of the discounting set, which is to be used for the discounting the periodic cash-flow.

Depending upon financing acceptance now different DCF methods are to be differentiated, which can lead on different enterprise values (however always not to have). At present during an inclusion of one body-expensively four procedures are differentiated:

• Equity method
  • FTE beginning (flow ton of Equity)
• Entity methods:
  • APV beginning (Adjusted Present VALUE)
  • WACC beginning (Weighted AVERAGE Cost OF Capital)
  • TCF beginning (total cash flow)

The disadvantages of the procedures are in the multiplicity of the acceptance, which require them. It is often only difficult in practice to determine, to what extent these are fulfilled. In particular the prognosis of the payment stream and the choice of the discounting factors prove as setting levers, which can sometimes obtain the impression of a manipulation of desired results.

Evaluation of real property

The DCF procedure (full the DCF analysis) is internationally the rule procedure for the evaluation of yield objects (free-hold flats, interest houses, office buildings). By the European (TEGoVA), British (RICS) and international (IVSC) Bewertervereinigungen is recommended and is permissible as "“other internationally recognized procedure"” both after the German valuation regulation and after the Austrian evaluation of real property law also in these countries.

The simplified DCF procedures (hardcore more layer and term reversion) turn off not to period-sharp document of identification of in and disbursements, but operate with pauschalierten inventory and/or market rents; depending upon relationship to the market rent an object can be overrented or underrented.

To consider it is with the application of the DCF analysis that for the view period a real estate property interest rate is to be selected, which does not contain an implicit index paste run gene (so-called equated yield), whereas the final value (terminal VALUE) is to be selected as interest with consideration of index paste run gene (equivalent yield).

Literature

• Joachim Krag, Rainer Kasperzak: Fundamentals of the assessment of company value, Franz Vahlen Munich 2000, ISBN 3800624168
• Lorenzo Pedrazzini, Francois Micheli: The price of real estates: Dynamic investment calculation for the real estate evaluation. Methodology and ten case examples, Versus 2002, ISBN 3039090046
• Tom copilot country, Tim vest, Jack Murrin: Enterprise value. Campus publishing house Frankfurt 2002, ISBN 3593357798
• Volker Oppitz, Volker Nollau: Paperback of the economy calculation. Quantitative methods of the economic analysis, Hanser technical book publishing house 2003, ISBN 3446224637
• Praise, Sebastian: "“Assessment of company value and terminal VALUE. Operational planning, taxes and capital structure"”, Peter long publishing house, Frankfurt at the Mail et al. 2006, ISBN: 363153907X
• Inga brown: Discounted cash-flow procedure and the influence of taxes - the enterprise value under attention of evaluation standards, German university publishing house 2005, ISBN 3824483130
• Yokes Drukarczyk: Assessment of company value, Franz Vahlen Munich 2006, ISBN 3800625180

Related links

• Internationally Valuation standard Comittee
• Royal of institutes OF Chartered Surveyors
• The European Group OF Valuers' Associations
• Monografie about DCF

Articles in category "Discounted cash-flow"

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