valuation
DCF is the industry abbreviation for discounted cash flow. When someone says 'run a DCF', they mean build (or refresh) a present-value model of expected free cash flow—usually to test a price, not to decorate a pitch book.
In live processes, DCF is less a textbook chapter than a tasking: "run a DCF on the CIM numbers", "run a DCF on the QoE case", "run a DCF at their WACC". The speaker wants a present-value answer by the next meeting, with the assumptions visible. The full name lives on the discounted cash flow page; this page is about how the abbreviation is used.
A competent "run" is not opening a template and typing WACC = 10%. It is choosing the cash-flow claim (FCFF vs FCFE), locking the forecast case, picking a discount rate that matches, and showing how much value sits in terminal value.
| Workblock | Typical contents |
|---|---|
| Case | Management, bank, and downside; not one hockey stick |
| Drivers | Volume/price, margin, NWC days, maintenance vs growth capex |
| Rate | WACC from CAPM + target gearing, or APV if structure is the story |
| Output | EV, equity after net debt, sensitivity grid, TV as % of EV |
| Smell test | Implied exit multiple vs comps; ROIC vs WACC in perpetuity |
Associates who "run a DCF" without reconciling year-n ROIC to WACC produce a perpetual value-creation machine that does not exist. Partners notice.
Monday CIM: invented Mira Home Care, asking €110m equity. Illustration only.
The associate runs three FCFF cases at 8.8% WACC, 2% g, eight-year explicit period.
| Case | EV | Equity after €18m net debt | vs ask |
|---|---|---|---|
| CIM | €141m | €123m | Ask looks inside |
| QoE (lower margin, slower NWC release) | €118m | €100m | Ask is 10% taut |
| Downside (volume −8% yr1, delayed price) | €96m | €78m | Ask does not clear |
"Running the DCF" here is the table, not a single NPV. The IC conversation becomes which case is the underwriting case.
Financial buyers run a DCF (or an LBO, which is a DCF with a capital structure) before they name a number in a process letter. Strategics run one on stand-alone and one on synergy. If the DCF only works with synergy, the bid needs a synergy owner, not a higher WACC fudge. Public-market PMs "run a DCF" to decide whether the tape is a gift or a trap versus intrinsic value.
A rushed DCF inherits the CIM's optimism. It is not a substitute for diligence on contracts, tax, and capex quality. Abbreviation culture can hide that the cash-flow definition changed between versions.
When Dazur says we will run a DCF, we mean a dated case file tied to the data room, not a black-box NPV. Owners get the grid; buyers get the same grid. The abbreviation stays honest only if everyone can see the cash and the rate that produced the number you are arguing about.