Value is a forecast, expressed in today’s money
A discounted cash flow model estimates the present value of cash flows a business can generate. For an enterprise DCF, the forecast typically uses unlevered free cash flow and a weighted average cost of capital.
The cash-flow bridge
UFCF = EBIT × (1 − tax rate) + D&A − capex − change in working capital
This simplified expression is a starting point. Company-specific accounting, cash taxes, leases and other adjustments need consistent treatment.
Two parts of enterprise value
The first is the present value of cash flow during the explicit forecast. The second is the present value of terminal value, representing the period beyond that forecast.
From enterprise to equity
Adjust enterprise value for net debt and relevant non-operating assets or other claims. Per-share estimates also require a carefully constructed diluted share count.