All steps of the discounted cash flow model are outlined. Essential steps are: calculation of free cash flow, forecasting of future accounting data (income statements and balance sheets), and discounting of free cash flow. There is particular emphasis on forecasting those balance sheet items...

The influential valuation book by an author team from McKinsey recommends the so-called value driver formula rather than the Gordon formula for the continuing value in the post-horizon period in the discounted cash flow model for firm valuation. This recommendation has had considerable impact on...