What is a Reverse DCF (Discounted Cash Flow) model?

The key takeaway from our DCF models is that our approach to valuation focuses on quantifying the market's future cash flow expectations in securities prices rather than making our own predictions on future cash flows.

The key takeaway from our DCF models is that our approach to valuation focuses on quantifying the market's future cash flow expectations in securities prices rather than making our own predictions on future cash flows. In other words, we prefer to be a critic of Mr. Market as a fortuneteller for future cash flows than be a fortuneteller ourselves.
This white paper and video explain exactly how our discounted cash flow (DCF) valuation models work, and how our clients use them to get the best insight possible into the future cash flow implications of their target prices and market prices.
A couple of other key points:
  1. Our reverse DCF models do not require us to be accurate forecasters. As long as we project a reasonable extrapolation of past performance, our models will always give us unique insight into the market’s expectations for future cash flows and how those expectations compare to past performance.
  2. Armed with that information, investors can make appropriately informed decisions about the valuation of securities.