0
$\begingroup$

I started valuating company based on their free cash flow by using DCF valuation.But for some companies i came across negative free cash flow for all years. How can we evaluate company with negative cash flow using DCF valuation? and if not then what is another method for valuating such companies? (here valuation mean to calculate intrinsic value )

$\endgroup$
3
  • 2
    $\begingroup$ The cash flows that matter for valuation are the future cash flows. They have to be projected... (you can't look them up). $\endgroup$
    – Alex C
    Oct 27, 2018 at 22:19
  • $\begingroup$ @AlexC thats what i m asking if past cash flow are positive we can predict future ones by finding their rate of increase but if they are negative how can we do that ? $\endgroup$ Oct 28, 2018 at 9:49
  • 2
    $\begingroup$ Future cash flows are not dependent on past cash flows. You cannot take a past growth rate and assume it will continue ad infinitum. You need a much more rigorous approach. $\endgroup$
    – amdopt
    Oct 29, 2018 at 14:55

2 Answers 2

2
$\begingroup$

There are alternative approaches, for example a company can have a significant balance sheet but still be making a loss, in that instance it should be worth at least the net balance sheet value as by disposing of all assets.

$\endgroup$
0
$\begingroup$

You can calculate companies in many different ways. In your particular situation I assume you've picked a growth stock. You can use similar competitors to value the company however it isn't reliable, therefore the payout model is good or discounted dividend model(incase of dividend).

You can also just calculate the stockholder's equity and divide it by the outstanding shares.

$\endgroup$

This site is temporarily in read-only mode and not accepting new answers.

Not the answer you're looking for? Browse other questions tagged .