Common DCF Errors (LMIS) University of Notre （常见的DCF错误(lmi)诺特丹大学）.pdf

LEGG MASON CAPITAL MANAGEMENT March 16, 2006 Common Errors in DCF Models Michael J. Mauboussin Do You Use Economically Sound and Transparent Models? Discounted cash flow analysis is the most accurate and flexible method for valuing projects, divisions, and companies. Any analysis, however, is only as accurate as the forecasts it relies on. Errors in estimating the key ingredients of corporate value . . . can lead to mistakes in valuation. Tim Koller, Marc Goedhart, and David Wessels 1 Valuation: Measuring and Managing the Value of Companies A Return to First Principles mmauboussin@ Say you had to come up with a fair offer to buy your local dry cleaner and the seller limited the extent of your financial information to the answers to five questions. Which questions would you ask? Chances are you wouldn’t ask how the quarter is progressing or about last year’s earnings, but you would focus on the prospects for cash coming in versus cash going out over time. Sole proprietors understand intimately that the value of their business hinges on the cash