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Discount Rate

8 years ago • updated by 8 years ago • 3

The assumed discount rate is always 9% for every company in the DCF Valuation. This results in substantial valuation estimate distortions for many companies. You do provide a sensitivity analysis table for alternative %s which is somewhat helpful. I know it wouldn't be easy to develop the necessary calculations, but are there plans in the near future to develop discount rate calculation that is specific to each company (or at least to each company's sub-industry group)? Thank you for your consideration.

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8 years ago

Good point. I actually wrote about this in the valuation section for discount rates in DCF.

http://bit.ly/2lroR26

Here's a snippet of what I wrote.

The discount rate we use is a fixed rate. We don’t use WACC or get fancy with discount rates because depending on what calculation method or number you use, it will come out differently. I have failed to come across two exact calculations of WACC by two different people.

If there is a way for me to grab the WACC of any company (major index and OTC's) that's something I'll look for but because the needed data isn't available across the entire universe, makes it tough.

8 years ago

Thank you for switching to a variable discount rate by industry. Nice that I no longer have to do a manual look-up and change the discount rate for every company than I'm checking the OSV Valuation models for.

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8 years ago

I appreciate the idea. This is a manual process for us, because no one offers this type of data. And if Prof Damodaran retires one day, hmmmmm.... fingers crossed.

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