Limitations of Discounted Cash Flow Valuation Models

Andy Jones
Nov 6 · 9 min read

While the discounted cash flow (DCF) methodology is the most rigorous and financially sound for business valuation, it does have several significant limitations, namely:

  1. Extreme sensitivity to certain input assumptions.
  2. Uncertainty in calculating the terminal value of the company.

1. Sensitivity to Assumptions

Two variables overwhelmingly influence the output of a DCF model:

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Andy Jones

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Time has nudged me PastMidway.com in my career and in life. With time to reflect, with some perspective, I write about my observations. ajones@PastMidway.com

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