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  • August 2013
  • Background Note
  • HBS Case Collection

A Simple Free Cash Flow Valuation Model

By: William A. Sahlman
  • Format:Print
  • | Language:English
  • | Pages:18 
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Abstract

Explores some of the issues involved in valuing cash flow streams. A simple model is presented that reveals the effect on value of changing assumptions about the appropriate discount rate, the level of profitability, the growth rate of sales, the asset intensity ratio, and the leverage ratio. Helps students address some of the following issues: 1) What is the definition of cash flow? 2) What effects do changes in the discount rate have on valuation? 3) How sensitive is value to changes in assumptions about the underlying characteristics of the cash flow stream? 4) How does growth affect value? 5) How does the use of leverage affect value? 6) What are price-to-earnings ratios? and 7) What factors affect price-to-earnings ratios?

Keywords

Cash Flow; Valuation

Citation

Sahlman, William A. "A Simple Free Cash Flow Valuation Model." Harvard Business School Background Note 814-027, August 2013.
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About The Author

William A. Sahlman

Entrepreneurial Management
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More from the Author
  • Guild Education: Unlocking Opportunity for America's Workforce By: William A. Sahlman, Michael D. Smith, Nicole Tempest Keller and Alpana Thapar
  • 1366 Technologies: Surviving in a Fast Changing World By: Jurgen Weiss, William A. Sahlman and Joseph B. Lassiter III
  • Khan Academy 2018 (Abridged) By: William A. Sahlman and Nicole Tempest Keller
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