Jefferies & Company

  www.jefferies.com
  www.jefferies.com

Interview Question

Investment Banking Analyst Interview San Francisco, CA

What if FCF's are negative in your terminal year?

Answer

Interview Answer

2 Answers

0

Firm is probably not stable yet - DCF assumes a stable company so if FCF's are negative, DCF is probably not best approach.

Interview Candidate on Oct 3, 2011
0

You would probably want to wait and extend your planning period until your free cash flow levels out - a terminal value multiple is no good if it is not based on a stable or somewhat stable cash flow. Remember that applying a terminal value multiple, or even a growth rate to your FCF is best at these scenarios:

1. Your company comes out of a business cycle
2. Your company realizes whatever investments they've undertaken
3. Your earnings stabilize (either from a peak or trough)

Anonymous on Oct 6, 2011

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