Why can you NOT ONLY use DCFS Model as Valuation Tool ?

I recently read an article that explains so well, why the DCSF model, cannot be used only to value a Business.

Businesses are worth and valued, on how well it has performed over a period of time.   Often sellers want to know but what about my assets ?    What about the future of what can happen ?   

The point is:  Assets must sweat to earn and create turnover, which in turn, should lead to profits.  Likewise, the future and the volatility in our country, makes it difficult to rely on Future CashFlows and a " what if scenario ".

There are several disadvantages of solely relying on a DCSF (Discounted Cash Flow) valuation method. Here are a few:

1. Subjectivity: DCSF valuation requires making assumptions about future cash flows, discount rates, and growth rates. These assumptions can be subjective and may lead to biased or inaccurate valuations.

2. Sensitivity to inputs: DCSF valuation is highly sensitive to the inputs used, such as cash flow projections, discount rates, and terminal values. Small changes in these inputs can significantly impact the valuation results.

3. Limited applicability: DCSF valuation is most suitable for analyzing companies with stable and predictable cash flows. It may not be appropriate for valuing early-stage startups, companies with irregular cash flows, or industries with high uncertainty.

4. Inability to capture intangible assets: DCSF valuation primarily focuses on financial metrics and may not adequately account for the value of intangible assets such as brand reputation, intellectual property, or customer relationships.

5. Ignoring market dynamics: DCSF valuation does not consider market dynamics, such as supply and demand forces, competitive landscape, or industry trends. These factors can significantly impact the value of a company but are not explicitly incorporated in the model.

It is important to note that while DCSF valuation has its limitations, it can still be a useful tool when used in conjunction with other valuation methods and when applied with careful consideration of its assumptions and limitations.

Hence why we use at Aldes, 4 different methods, combined into one value.   

Trust us !