Application of Discounted Cash Flow Model in Company Valuation- A Case Study of Netflix

Abstract

In recent years, the Internet has profoundly changed the way people live, work and play in a form of rapid development. With this trend, the activities of Internet enterprises in the capital market are becoming increasingly frequent. How to use reasonable methods to value Internet enterprises has become an important issue. This paper discusses several existing enterprise valuation models and uses the discounted cash flow model to evaluate Netflix and estimates the enterprise value of Netflix based on the discounted cash flow model(DCF) and the capital asset pricing model(CAPM). The research used qualitative and quantitative methods to predict the financial data of enterprises, applying the linear regression method to predict the income and expenses of enterprises in the next six years, and qualitatively estimating the changes in the financial data of enterprises, and finally calculating WACC and corporate value. By comparing the data, this paper found that there are some differences between the calculated enterprise value and the official enterprise value, as well as some differences between the estimated debt to equity ratio and the expected ratio. This paper also discusses the reasons for the calculation differences, including the inherent defects in the application of the DCF model and the differences of data prediction.

Stock valuation before and after the COVID-19 pandemic: Free Cash Flow to Firm (FCFF) and relative valuation approach with Discounted Cash Flow (DCF) valuation method

“…Intrinsic value is obtained from the equity value in each scenario divided by the number of shares outstanding. Below is presented the intrinsic value of the results of data processing and analysis with DCF-FCFF: As one of the most recognized valuation methods, Discounted Free Cash Flow (DCF) is widely used in assessing the real value of companies, including in determining share prices, conducting mergers and acquisitions, financing planning, tax analysis, and providing views to shareholders who wish to sell their shares (Wang, 2022).…”