DCF Valuation

Use This Skill When

• The user wants an intrinsic valuation anchored in explicit cash flow assumptions.
• The task requires understanding how long-term growth, margins, reinvestment, and discount rate drive value.
• The analysis needs a valuation range, sensitivity framing, and scenario logic rather than a single target price.
• The output should make assumption risk visible and auditable.

Required Inputs

• company and, if available, ticker
• forecast horizon: usually 5 to 10 years
• revenue assumptions: growth path, segment mix, pricing, volume, or TAM constraints
• profitability assumptions: gross margin, operating margin, tax rate
• reinvestment assumptions: capex, working capital, capitalized R&D if relevant, acquisitions if explicitly modeled
• discount rate inputs: cost of equity, WACC, debt, capital structure, country or size risk if relevant
• terminal value approach: perpetual growth or exit multiple, plus rationale
• share count, net debt, minority interest, or other equity bridge items if equity value is needed
• If important inputs are missing, use a clearly labeled placeholder range, reduce confidence in the output, and explain which assumption dominates the result.

Workflow

1. Define the valuation objective, forecast horizon, and whether the model is FCFF, FCFE, or another structure.
2. Lay out the operating forecast:
   • revenue growth path
   • margin path
   • tax path
   • reinvestment needs
3. Translate operating assumptions into cash flow, making the reinvestment burden explicit.
4. Define the discount rate and why it is appropriate for the business and risk profile.
5. Define terminal assumptions and explain why they are economically plausible.
6. Build bull, base, and bear cases with a concise narrative behind each case.
7. Run sensitivities around the variables that matter most, usually growth, margin, WACC, and terminal assumptions.
8. Conclude with a valuation range, the dominant drivers, and the assumptions that would invalidate the current range.

Output Requirements

• Show every major assumption explicitly.
• State whether the valuation is enterprise value or equity value and show the bridge if needed.
• Highlight terminal value dependence.
• Use ranges when the underlying data quality or business uncertainty is high.
• Mark Fact, Assumption, and Inference distinctly.
• If placeholders are used, say so prominently and avoid presenting the result as investment-grade precision.

Output Template

Quality Checks

• Verify the cash flow build is internally consistent with the revenue and margin assumptions.
• Check that the discount rate and terminal assumptions are economically plausible together.
• Confirm that the terminal value does not dominate without explicit warning.
• Ensure the bull, base, and bear cases differ in narrative and assumptions, not just arbitrary percentages.
• Re-read the output and remove any valuation precision that the inputs cannot support.

Guardrails

• Do not hide key assumptions inside prose; surface them explicitly.
• Separate facts, assumptions, and inferences clearly.
• Do not invent consensus estimates, share counts, or net debt figures.
• Do not use a terminal growth rate that exceeds plausible long-run economic growth without justification.
• Avoid presenting a DCF as objective truth; it is an assumption-sensitive framework.

Example Prompts

• Build a DCF valuation for this company and show the main sensitivities.
• Estimate fair value using a base, bull, and bear DCF framework.
• Create an auditable DCF with explicit operating assumptions, an equity bridge, and a sensitivity range.