If you’ve ever prepared a discounted cash flow valuation, you’ll know that bankers have a dirty little secret: a valuation can be made to say whatever you want it to say. It can be done in the most subtle ways, with only an experienced eye able to see where the finance stops and the nonsense starts.For example, if the bulk of a company’s value sits in the terminal value (the value beyond the immediate future), then any change to the discount rate causes a significant swing in the present value. This is because the long-duration cash flows are further in the future and more sensitive to the rate being used to bring them back to today’s money.When does the terminal value kick in, though? Does the model have three, five or seven years of specific forecasts? What growth rate is applied to those forecasts? Are the long-term working capital assumptions reasonable? What about capex?That’s before we even get into the nuances behind the discount rate. If you studied the capital asset pricing...

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