- Trending Categories
- Data Structure
- Operating System
- C Programming
- Selected Reading
- UPSC IAS Exams Notes
- Developer's Best Practices
- Questions and Answers
- Effective Resume Writing
- HR Interview Questions
- Computer Glossary
- Who is Who
Explain discounted cash flow analysis in merger and acquisitions
Discounted cash flow (DCF) analysis tells about the present value of an asset/company, based on the money, which it can make in future. This analysis will estimate the intrinsic value of a company.
Current and future performances of a company are taken into consideration. Both inflow and outflow cash flows are discounted to the present value and sum of all the present values of future cash flows are equal to the net present value.
The categories of discounted cash flow (DCF) are explained below −
Internal forces − Considered as solid data, because raw information (quantitative) is used. Information includes historical performances, current operations and potential.
External forces − Market cycle and competitors' growth are external forces. It is not easy to forecast these forces. One should estimate these forces to make an accurate model.
The advantages of discounted cash flow (DCF) are as follows −
- Detail report.
- No comparable companies are required.
- Allows sensitivity analysis.
- Suitable for analyzing.
- IRR can be calculated.
- Future expectations.
The disadvantages of discounted cash flow (DCF) are as follows −
- Error prone.
- Assumptions are too large.
- Over complexity.
- Assumptions are very sensitive.
- Competitions' valuations are not considered.
- Sometimes, a person may get over confident and this may lead to miscalculations.
- Explain about payback period in non-discounted cash flow technique in capital budgeting.
- Define NPV in discounted cash flow technique in capital budgeting.
- What is synergy in merger and acquisitions?
- Differentiate between cash flow and free cash flow.
- What are the risks in merger and acquisitions?
- What is Profitability index in discounted cash flow technique in capital budgeting?
- Explain free cash flow to firm (FCFF)
- How to use Cash Flow Approach for Capital Structure Analysis?
- Why is Discounted Cash Flow (DCF) Method not suitable for valuing stock options?
- What is Accounting Rate of Return in discounted cash flow technique in capital budgeting?
- Cash Ratio: Definition and Analysis
- What are the issues in Merger & Acquisitions?
- Difference Between Cash Flow Statement and Funds Flow Statement
- Explain Merger and its types
- Explain exchange ratio in mergers and acquisitions