dcf-methodology

DCF Methodology

OloLand's deterministic DCF engine has specific conventions. Use these when discussing, requesting, or interpreting DCF output from any OloLand MCP tool.

Unit system

• Storage — FinancialDataSnapshot stores values in ABSOLUTE DOLLARS.
• Calculation — DCF engine internally works in MILLIONS.
• Display — format as smart B/M/K via format_smart() (the platform helper).
• Never mix units across periods or inputs without explicit conversion.

Default assumptions (when not specified by the user or the deal)

• Tax rate — 17% (use the deal-specific effective tax rate when filings provide it)
• CapEx % of revenue — 5% (override with historical 3-year average when available)
• Terminal growth rate — 2.5%
• WACC — CAPM-calculated using a deal-specific beta from comps; default to 9.5% if comps unavailable
• Projection horizon — 5 years explicit + terminal value
• Working capital — % of revenue, projected at the historical average

Terminal value

• Use Gordon Growth (perpetuity) as the primary method.
• Cross-check with the exit-multiple method (terminal year EBITDA × industry median EV/EBITDA).
• If the two methods diverge by >25%, surface the discrepancy and explain which anchor is more credible for this deal.

Sensitivity

• Always report a sensitivity matrix on WACC (±1.5%) × terminal growth (±0.5%).
• For PE deal review, also report sensitivity on exit-year EBITDA (±20%).

Interpretation guardrails

• DCF is a scenario, not truth. State the key assumption drivers (revenue growth, EBITDA margin trajectory, terminal multiple).
• Bind every DCF claimed as current, published, or governed to the run, publication, financial-snapshot, and receipt identifiers returned by the valuation tool. Do not infer its basis from the newest financial snapshot or from a separate financial read.
• After an explicitly authorized fresh run, you may show the returned result as a separate unpublished candidate before publication only when it has its own candidate run identity and returned assumption provenance. State the missing publication/receipt fields and exclude the candidate from the governed decision range, football field, and bid input until a governed read binds it to the full identity.
• State whether each material assumption was returned as applied, caller-supplied, or defaulted. Do not claim an assumption was used merely because it appears in a separate deal, risk, or market response.
• If neither the full governed identity nor an explicitly authorized candidate run identity is present, or enterprise value is returned as ev_not_meaningful, withhold the valuation conclusion and label the result unavailable/not meaningful. A new model run is a write-like workflow and requires the user's explicit request; after it runs, re-fetch the DCF before claiming any candidate became current.
• The current canonical snapshot may have collapsed reported and adjusted EBITDA labels. Treat the returned model as canonical_snapshot only when its exact governed identity does not carry a publication-bound EBITDA bridge proving a distinct basis. When that lineage does prove a distinct adjusted basis, preserve the returned basis label and adjusted_case status. Never infer a second case from an uncited CIM number or a latest QoE result.
• If liquidity, covenant, control, or audit evidence contradicts the DCF, the deterministic engines (forensic QoE, scenario defense) override the DCF anchor. Use the forensic-qoe skill to find those signals first.
• Surface when a DCF is computed on data flagged for material weakness — that diminishes confidence regardless of the math. Use the citation-discipline skill to cite the material-weakness disclosure inline alongside the DCF output.