Business Valuation in Excel Business valuation involves the
study of many aspects of a business, including anticipated
revenues and expenses. Because cash flows extend over time, an
Excel discounted cash flow (DCF) model can be a helpful tool. A
Discounted Cash Flow analysis for a business valuation requires
the analyst to consider two components: (i) a projection of
ongoing revenues and expenses of the foreseeable future; and,
(ii) a determination of the discount rate to be used. Ongoing
Revenues and Expenses Projecting a business’ expected ongoing
revenues and expenses requires expertise in the business’
specific field. For example, a DCF analysis for purchasing an
office tower requires input from commercial real estate
specialists. Similarly, a DCF analysis of a proposed mine
requires the involvement of geologists. Selecting the discount
rate requires us to consider two components: (i) the cost of
capital; and, (ii) the risk premium associated with the stream
of projected net revenues. Capital is a product