How to build a bangin’ DCF Model like the true Wall Street Playa you are


A true Wall Street playa knows that building a bangin’ DCF model will not only make him look extra smart in front of his bosses but will help in the sack as well.  Let’s face the facts.  Chicks dig dudes who can build a DCF model.  Telling a chick you can build a multi-segment DCF model in a few minutes will literally get you laid.  But setting your discount rate to 10% is definitely not the key to becoming a true Wall Street playa.  There are a few things to take into consideration if you really want to building a really good DCF model.

Set your discount rate as low as possible

A true Wall Street playa knows the lower the discount rate the higher the valuation.  You are going to want to set your discount rate as low as possible.  Try taking your 10% discount rate down to 1% and watch your valuation just explode.  You could even get courageous and use a 0% discount rate.  Real playa’s don’t need to discount cash flows at all.  Discounting cash flows is actually for virgins – and your don’t want to be a virgin in this industry.  If you think you can run with the big dogs, try setting your discount rate to a negative percentage.  This will ensure almost unlimited upside.  Setting your discount rate to a negative percentage is called having a CFA Level 3. 

Perpetual growth rate of 3%? Don’t be a sissy – set it to 300%

I’ve seen a lot of loser Wall Street fools set their perpetual growth rates to a measly 3%.  If you are setting your discount rate to anything in the single digits you are just screaming out how you are a loser virgin.  Real Wall Street Playa’s set their perpetual growth rates in the triple digit range.  If you want to be a big time playa and not a virgin set your perpetual growth rate to at least 300%.  Using measly 3% perpetual discount rates scream you are a virgin and don’t have a CFA.

Make sure 99% of the value comes in the terminal value

A Wall Street Playa will always make sure 99% of the value comes from the terminal value.  If you are not getting at least 99% of your value in the terminal value you should just quit trying to be a Wall Street Playa and go home.  The real value of a company comes in the terminal value – not the next two quarters!  But always focus 100% of your time on the next few quarters – despite 99% of the value coming from the terminal value.

If the company is unprofitable just make up your own financials

If the company, you are modeling out is unprofitable forget their financials and just make up your own.  You are a Wall Street Playa now and everyone just makes up their own financials – this is basically called GAAP accounting.  I like to just put nice round even numbers in my financials for the company I am modeling.  Sometimes I even substitute financials from a good company to a bad company. 

Your terminal EBITDA multiple should be in the six-digit range

Set your terminal EBITDA in the six-digit range.  I usually just use a nice even terminal EBITDA multiple of 100,000x.  If you are using single digit small terminal EBITDA multiples it’s likely you have small private parts and will definitely never become a true Wall Street Playa.

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