How to calculate Intrinsic using DCF with EPS method

Investment Learning
1

HI All,

I am a novice and following VP forum. I have seen various members of this forum which uses DCF with EPS to come up with stock price. I know there are underlying issues in the calculation but I just want to learn this method for knowledge purpose.

Can someone please explain me with help of an existing listed company in our stock exchange.

Thanks in advance
Sunny

2

At a high level, you are going to take all the future cash flows and not EPS as it can be misleading.
Project 5-10 years of cash flow and a terminal value for the rest of the company’s lifetime. Discount the total for cost of capital.

If you want to learn, suggest you read Aswath Damodaran, best in business on DCF. Also read the DCF caveats from Legg Mason, Bruce Greenwald etc.

If my answer is too high level and you want a specific example, visit a site like Dr.Vijay Malik.
I am just avoiding the detailed answer here as the quality of some of these articles are far superior to what I can write as a response here.

Cheers.

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3

Hi Sunny,

Me too a newbie in the field of investing, I have learned only DCF using FCF & I think that makes clear sense to me. Since the abbreviation of DCF is Discounted Cash Flows and accural earnings can be fudged, we should use FCF only. For detailed explanation refer https://janav.wordpress.com/2014/10/12/accounting-for-value-1/

Regards,

Sunny Malhotra

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