Dell Inc. (DELL)
Discount cash flow analysis
5% margin of safety What's this?
Sensitivity matrix
|
-1% |
Discount Rate % 0% |
1% |
||
|---|---|---|---|---|
| -1% | $19.39 | $19.20 | $19.00 | |
| Terminal Growth% | 0 | $19.44 | $19.24 | $19.05 |
| +1% | $19.49 | $19.29 | $19.09 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $14.20 (overvalued by 0.42%) - 9 hours ago
- GordonGekko created a new valuation of $15.80 (undervalued by 15.84%) - 1 month ago
- diegovillagran created a new valuation of $24.24 (undervalued by 83.92%) - 2 months ago
- diegovillagran created a new valuation of $10.61 (overvalued by 19.5%) - 2 months ago
- macalex12 created a new valuation of $12.70 (overvalued by 11.31%) - 3 months ago
- macalex12 created a new valuation of $11.71 (overvalued by 18.23%) - 3 months ago
- jdlong43 created a new valuation of $9.70 (overvalued by 26.96%) - 8 months ago
- SethWellbourne created a new valuation of $11.59 (undervalued by 22.13%) - 11 months ago
- GordonGekko created a new valuation of $9.21 (overvalued by 0.97%) - 1 year ago
- TheCrunchBlog created a new valuation of $19.24 (undervalued by 26.16%) - 1 year ago
- GordonGekko created a new valuation of $19.09 (undervalued by 25.18%) - 1 year ago
- KiwiEMH created a new valuation of $19.36 (undervalued by 14.35%) - 1 year ago
- GordonGekko created a new valuation of $16.23 (overvalued by 2.41%) - 1 year ago
- GordonGekko created a new valuation of $17.41 (overvalued by 3.22%) - 1 year ago
- GordonGekko created a new valuation of $25.84 (undervalued by 0.82%) - 1 year ago
- TheCrunchBlog created a new valuation of $23.94 (undervalued by 3.82%) - 1 year ago
- TheCrunchBlog created a new valuation of $24.24 (undervalued by 27.04%) - 1 year ago
- GordonGekko created a new valuation of $20.69 (undervalued by 8.44%) - 1 year ago
- BudFox1987 created a new valuation of $18.42 (overvalued by 3.31%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 20,541 |
| Net Debt (Long-term borrowings less cash): | -7,385 |
| Equity Value: | 29,864 |
| Number of Shares Outstanding: | 1,958,000,000 |
| Calculated value per share: | $19.24 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/10/running-the-numbers-dell-has-fallen-too-far/
Our assumptions are revenues of US$65.0 billion in 2009 growing to US$70.0 billion in 2011. We have used a flat EBITDA margin of 6.5% to 2010 and then 7% in 2011. Our terminal growth rate is 3.0%. We used a terminal capital expenditure number of US$800 million. Our WACC (discount rate) is 12.0%. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation. Our analysis incorporates the cash and debt on the $DELL balance sheet – Valuecruncher calculates a net debt number.
We believe that our assumptions are reasonably conservative. The near-term revenues and profitability are very achievable. The terminal growth rate is about the US economic long-term growth rate. The discount rate of 12% is reasonably high reflecting the uncertainty around $DELL.