From wealth-management
Estimates intrinsic value of stocks and companies using DCF, dividend discount models, comparable multiples, and residual income. Useful for fair value analysis, sensitivity testing, and over/undervaluation checks.
npx claudepluginhub joellewis/finance_skills --plugin wealth-managementThis skill uses the workspace's default tool permissions.
Provides frameworks and formulas for estimating the intrinsic value of a stock or company using quantitative models. Covers discounted cash flow (DCF), dividend discount models (DDM), comparable multiples, residual income, and sum-of-the-parts valuation. Enables rigorous, assumption-driven valuation that can be stress-tested through sensitivity analysis.
Guides Next.js Cache Components and Partial Prerendering (PPR) with cacheComponents enabled. Implements 'use cache', cacheLife(), cacheTag(), revalidateTag(), static/dynamic optimization, and cache debugging.
Guides building MCP servers enabling LLMs to interact with external services via tools. Covers best practices, TypeScript/Node (MCP SDK), Python (FastMCP).
Generates original PNG/PDF visual art via design philosophy manifestos for posters, graphics, and static designs on user request.
Provides frameworks and formulas for estimating the intrinsic value of a stock or company using quantitative models. Covers discounted cash flow (DCF), dividend discount models (DDM), comparable multiples, residual income, and sum-of-the-parts valuation. Enables rigorous, assumption-driven valuation that can be stress-tested through sensitivity analysis.
3 — Valuation
prospective
The DCF model values a company as the present value of its future free cash flows plus a terminal value:
V = Σ FCF_t / (1 + WACC)^t + TV / (1 + WACC)^n
where FCF_t is the free cash flow in year t, WACC is the weighted average cost of capital, and TV is the terminal value at the end of the explicit forecast period.
Estimates the value of all cash flows beyond the explicit forecast period assuming perpetual growth:
TV = FCF_n × (1 + g) / (WACC - g)
where g is the long-term sustainable growth rate (typically near nominal GDP growth, 2-4%).
Estimates terminal value by applying a market multiple to the final-year financial metric:
TV = EBITDA_n × EV/EBITDA multiple
The exit multiple is typically based on current peer trading multiples or long-run sector averages.
Blends the cost of equity and after-tax cost of debt weighted by their market-value proportions:
WACC = w_e × r_e + w_d × r_d × (1 - τ)
where w_e and w_d are equity and debt weights, r_e and r_d are their respective costs, and τ is the marginal tax rate.
The Capital Asset Pricing Model estimates the required return on equity:
r_e = R_f + β × (R_m - R_f)
where R_f is the risk-free rate, β is the stock's sensitivity to market returns, and (R_m - R_f) is the equity risk premium.
Values a stock as the present value of its future dividends. The Gordon Growth (single-stage) form:
P = D_1 / (r - g)
where D_1 is the next-period dividend, r is the required return, and g is the constant dividend growth rate.
Accommodates companies transitioning through growth phases:
Values a company as its book value plus the present value of economic profits:
V = BV_0 + Σ (ROE - r) × BV_{t-1} / (1 + r)^t
This model is useful when free cash flows are negative but the company earns above its cost of equity.
Relative valuation uses pricing ratios from a peer group to infer value:
Use the median of the peer group to reduce outlier effects. Adjust for differences in growth, margins, and risk.
Compare a stock's current multiple to:
A stock trading at a discount to both may be undervalued, or there may be fundamental deterioration.
Value each business segment separately using the most appropriate method (DCF, multiples, or asset-based), then sum. Subtract net debt and add non-operating assets to arrive at equity value.
Vary key assumptions (WACC and terminal growth rate are the most impactful) in a two-way data table to understand the range of possible valuations. This exposes which assumptions drive the result.
| Formula | Expression | Use Case |
|---|---|---|
| DCF Value | V = Σ FCF_t/(1+WACC)^t + TV/(1+WACC)^n | Enterprise valuation from cash flows |
| Gordon Growth TV | TV = FCF_n×(1+g)/(WACC-g) | Terminal value assuming perpetual growth |
| Exit Multiple TV | TV = EBITDA_n × multiple | Terminal value using market multiples |
| WACC | WACC = w_e×r_e + w_d×r_d×(1-τ) | Blended discount rate |
| CAPM | r_e = R_f + β×(R_m - R_f) | Cost of equity estimation |
| Gordon Growth DDM | P = D_1/(r-g) | Stock value from dividends |
| Residual Income | V = BV_0 + Σ (ROE-r)×BV_{t-1}/(1+r)^t | Value from economic profit |
| Implied Value (Comps) | V = Metric × Peer Median Multiple | Relative valuation |
Given:
Calculate: Enterprise value
Solution:
Projected free cash flows:
PV of Stage 1 cash flows:
Terminal value (Gordon Growth):
Enterprise Value = $572.5M + $1,837.3M = $2,409.8M
Note: Terminal value represents 76% of total value, which is typical but underscores the importance of terminal assumptions.
Given:
Calculate: Implied share price using peer median
Solution:
Peer median P/E = 18x (middle value of the sorted set)
Implied share price = EPS × Peer Median P/E = $5.00 × 18 = $90.00
If the stock trades at $75, it appears undervalued relative to peers (16.7% discount). Before concluding, check whether lower growth, margins, or higher risk justify the discount.
See scripts/quantitative_valuation.py for computational helpers.