Payoff In DCF Valuation Model

Payoff In DCF Valuation Model

When i value companies, one of the common questions that i come across is 𝐡𝐨𝐰 𝐜𝐨𝐧𝐟𝐢𝐝𝐞𝐧𝐭 𝐢 𝐚𝐦 𝐢𝐧 𝐦𝐲 𝐯𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐦𝐨𝐝𝐞𝐥. My response is that it depends on the companies i value.

In my view, when i value companies to either invest or provide recommendations, 𝗺𝘆 𝗺𝗼𝘁𝘁𝗼 𝗶𝘀 𝘁𝗼 𝗯𝗲 𝗹𝗲𝘀𝘀 𝘄𝗿𝗼𝗻𝗴 𝘁𝗵𝗮𝗻 𝗼𝘁𝗵𝗲𝗿𝘀, that truly happens when there are maximum uncertainties. Anyone can value a mature utility company in the US, but the challenge is valuing companies like Paytm, where an ultimate payoff is valued.

𝐓𝐡𝐮𝐬, 𝐮𝐧𝐥𝐞𝐬𝐬 𝐲𝐨𝐮 𝐝𝐨 𝐧𝐨𝐭 𝐢𝐠𝐧𝐨𝐫𝐞/𝐯𝐢𝐨𝐥𝐚𝐭𝐞 𝐭𝐡𝐞 𝐟𝐮𝐧𝐝𝐚𝐦𝐞𝐧𝐭𝐚𝐥𝐬 𝐢𝐧 𝐟𝐢𝐧𝐚𝐧𝐜𝐞, 𝐯𝐚𝐥𝐮𝐢𝐧𝐠 𝐲𝐨𝐮𝐧𝐠 𝐜𝐨𝐦𝐩𝐚𝐧𝐢𝐞𝐬 𝐟𝐚𝐜𝐢𝐧𝐠 𝐡𝐢𝐠𝐡 𝐮𝐧𝐜𝐞𝐫𝐭𝐚𝐢𝐧𝐭𝐢𝐞𝐬 𝐰𝐢𝐥𝐥 𝐚𝐥𝐰𝐚𝐲𝐬 𝐠𝐢𝐯𝐞 𝐚 𝐡𝐢𝐠𝐡𝐞𝐫 𝐩𝐚𝐲𝐨𝐟𝐟 𝐭𝐡𝐚𝐧 𝐚 𝐦𝐚𝐭𝐮𝐫𝐞𝐝 𝐜𝐨𝐦𝐩𝐚𝐧𝐲.

If you are comfortable valuing a business, lower the payoff because others will be as accurate as you.