1. DCF Valuation: FCF and EVA Models James L. Grant, Ph.D. JLG Research jim@jlgresearch.com

2. FCF and EVA Valuation Free Cash Flow Formula Generating Cash Flow Estimates Valuation of Cash Flows Cost of Capital Variation EVA Valuation

9. EVA Valuation Model Economic Profit Formula Forecasting Economic Profit NPV Valuation of EP Cost of Capital Variation Standard Accounting Adjustments

14. Standard EVA Accounting Adjustments Operating leases LIFO Reserve Research and Development Goodwill Amortization Special items (restructuring costs) (typically cited in CFA program)

15. JLG Research Disclosed versus Basic EVA Dow Jones Industrials Amount ($ mill.)% Basic EVA46,964.50100.00 Effect of Operating Leases127.540.27 Effect of R&D Expenses(4,094.55)(8.72) Effect of LIFO Reserves(917.69)(1.95) Disclosed EVA42,079.8089.60 *Equity betas in this analysis were set equal to 1.0

16. Illustration of Multiple Regression Analysis Top 50 US Wealth Creators (And Destroyers)

19. NPV/Cap=a + b times EVA/Cap Decile b (slope) R-Squared 118.57 67.37% 511.72 39.74% 62.99 10.57% 100.46 7.47% Source: J. Grant, Foundations of Economic Value Added

20. Thank you!