Milestone map
Milestone map
3 milestones
Select a Company and Build the DCF Model Foundation
3–4 weeks
Select a real publicly listed company and build the foundation of a Discounted Cash Flow (DCF) valuation. Gather the last five years of financial statements from the company's actual filings (10-K or Annual Report). Project free cash flows for the next five years based on stated assumptions grounded in historical performance and industry analysis.
Proof required
Submit: (a) the selected company and links to the actual financial filings used, (b) a five-year historical financial summary showing revenue, EBITDA, capital expenditure, and free cash flow, and (c) a five-year FCF projection with all key assumptions stated explicitly — revenue growth rates, EBITDA margins, capex intensity — with rationale for each assumption referenced to historical performance or industry benchmarks.
What gets checked
- Financial data is from actual company filings — not from a financial data aggregator that may have adjustment methodologies
- All projection assumptions are stated explicitly with rationale
- FCF definition is consistent (unlevered vs. levered is stated)
Common mistakes
- Assuming revenue growth rates significantly above historical performance without specific justification
- Not distinguishing between unlevered and levered free cash flow — these produce different valuations with different discount rates
Resources
What a verifier looks for
- Review the FCF projections: are the growth assumptions within the range of the company's historical performance and industry norms? Wildly optimistic assumptions should be challenged with 'What would need to be true for this growth rate to occur?'
- Check that the FCF definition is consistent with the discount rate chosen — unlevered FCF discounted at WACC; levered FCF discounted at cost of equity.
Calculate WACC and Derive the Intrinsic Value with Sensitivity Analysis
2–3 weeks
Calculate the Weighted Average Cost of Capital (WACC) for the company using the Capital Asset Pricing Model (CAPM) for the cost of equity. Apply the terminal value (Gordon Growth Model or exit multiple). Derive the intrinsic value per share. Build a sensitivity analysis showing how the valuation changes under different WACC and growth rate assumptions.
Proof required
Submit: (a) the WACC calculation showing risk-free rate, equity risk premium, beta, cost of debt, and weights with sources for each input, (b) the terminal value calculation with explicit terminal growth rate rationale, (c) intrinsic value per share with comparison to current market price, and (d) a sensitivity analysis matrix showing intrinsic value across a range of WACC (±1%) and terminal growth rate (±0.5%) assumptions.
What gets checked
- WACC inputs are sourced — beta from a reputable source, risk-free rate from current government bond yields
- Terminal growth rate is justified with reference to the long-term GDP growth rate
- Sensitivity matrix covers a meaningful range — not just ±0.1%
Common mistakes
- Using a terminal growth rate higher than the long-term GDP growth rate without justification — a company cannot grow faster than the economy in perpetuity
- Using a historical beta without considering whether it is representative of the company's current risk profile
Resources
What a verifier looks for
- Challenge the WACC: 'Your beta is 1.2 — where did you source this? Is the levered or unlevered beta appropriate for this model?' The answer reveals whether the submitter understands the mechanics.
- Check the sensitivity matrix: does the range of implied values span a meaningful range? If the intrinsic value barely changes across ±1% WACC, the model may have an error in the discount structure.
Present Valuation to a Finance Professional and Defend Assumptions
1 week
Present the DCF valuation to a finance professional (investment analyst, corporate finance professional, CFO, or finance academic) who will challenge at least two key assumptions. Document the challenges, your responses, and any revisions.
Proof required
Submit: (a) a one-page valuation summary (investor memo format) summarising the investment thesis and key valuation outputs, (b) a Q&A log from the review session (minimum 400 words with at least two challenges to specific assumptions and your responses), and (c) attendance record with reviewer name and credentials.
What gets checked
- Valuation summary states a clear investment thesis — not just a table of numbers
- Q&A log shows challenges to model assumptions, not just requests for clarification
- Reviewer has finance or investment analysis credentials
Common mistakes
- Valuation summary reports intrinsic value without a recommendation or investment thesis
- Review session with someone without finance expertise who cannot challenge the WACC or terminal value methodology
What a verifier looks for
- Your most valuable challenges probe the assumptions that drive the most valuation sensitivity: 'Your model is most sensitive to terminal growth rate — what evidence supports this rate, and what if you applied the current 10-year GDP consensus instead?'
- Provide written confirmation (minimum 150 words) of your finance credentials and the specific assumptions you challenged.