Stock DCF Valuation Simulations Dixon Liang Tiffany Zeyu

Overview Use inputs of discounted cash flows to predict various stock prices in the future Various types of stocks from micro-cap growth to value blue-chip Add a simulation (similar to Monte Carlo) to further predictions, adding probability, run simulation using DCF inputs Ex. If revenue has a 50% change of increasing by 30%, what could happen to the stock price in the future?

Discounted Cash Flows A foundation of investment banking, one of the most used techniques to value a company ahead of a merger, acquisition, capital raising activity, etc. Taking all future cash flows, and discounting value to present value to come up with an estimate of company worth Various inputs from revenue growth to capital expenditures

Monte Carlo Simulation Aspect Use a random number generator to replicate probability of a certain event such as revenue growth Run determined number of trials and aggregate results If rand(100) < 50 then… Ex. 50% chance of 30% increase in revenue, run 1,000 times, how many of those 1,000 times results in 30% increase in revenue, etc. Can either create a simple program from scratch or build model on Excel depending on human resources and logistics

Timeline February: Establish team members Finalize plans Learning and familiarizing with DCFs Picking stocks to work with March: Begin working on simulator aspect April: Presentation

Benefits for Analysts Great learning experience for all interests from investment banking to quantitative finance Become very familiar with DCFs, valuating a stock, modeling/simulations, etc. Adding value to create something concrete in the process Want every member to be directly involved, won’t just be watching others Ability to use program or model in the future Great resume builder and talking point in future interviews Interested? Talk with Dixon or Tiffany afterwards