Discounted Cash Flow (DCF) Calculator Based on Mohnish Pabrai’s Book Mosaic

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Discounted Cash Flow (DCF) Calculator Based on Mohnish Pabrai’s Book Mosaic

December 21, 2006 by Eric Schleien

The last few days when I have had some free time I decided to put together a Discounted Cash Flow (DCF) Calculator based on the “How to Calculate Intrinsic Value” in Mohnish Pabrai’s book Mosaic.

http://intelligentinvesting.googlepages.com/DCF.xls <=== LINK

I’m far from perfect so if there’s any bugs please let me know.

Posted in Everything, Investing, Mohnish Pabrai, Personal, Security Analysis | 6 Comments

6 Responses

on December 21, 2006 at 6:30 am | Reply nick levis

awesome tool…..
on January 22, 2007 at 11:34 am | Reply Dave nafziger

The calculator is great…. when you do your next stock write ups would you show the numbers for the discounted cash flow calculator
Dave
on May 8, 2007 at 1:36 am | Reply lucas

Nice site pal!

Are you by any chance a portfolio manager?

Check out my site…
on June 11, 2007 at 2:19 pm | Reply Ej

Thanks alot I just found this and its a gem. Much better then the Calculator I wrote up. Also a quick question – Have you read Pabrai’s new book. I am having a hard time finding Mosaic. Does his new book cover most of that info.
on January 12, 2008 at 1:53 am | Reply joe

Hi Eric,

I just stumbled on this site today. Nice spreadsheet based on Pabrai’s thinking. I’ve read Dhando, but not yet Mosaic. So please pardon if this is way off base, but I think I see an error in your calculations.

Your result is based on 10 Year PV Price (cell C15). Ignoring the treatment of cash on hand, you’re working your way through the years, up to the 10th year’s FCF, and then you simply use the PV of the 10th year FCF * 10. I think instead of this you should be using the SUM of all the 10 year’s PVs.

I think this more accurately reflects what happens. Each year into the future, cash will be generated. It’s value today is it’s PV. All of those summed together is what the company’s worth.

I have a couple of questions for you, again pardon I’ve not read Mosaic…

1. Why the PV handling of Cash On Hand? I would think you simply add the actual cash to the summed PVs, not the PV-ed version. Cash on Hand is not a ‘future value’. We really have that cash now.

2. I notice there’s no ‘terminal rate’. Instead it seems that Pabrai is assuming the company ceases to exist (year 10 sale price). I would think in reality even after year 10 the company still generates cash, still has future values which can be discounted back to the present. I realize these outer years aren’t reliable, nor do they weight the model much, but they do add something, and I believe it’s more realistic. Is it just Monish being ultra-conservative, do you think?

Thanks for any information.

Regards.
on January 14, 2008 at 2:56 pm | Reply Sriram

Hi,
I looked at DCF model and have a question related to calculation of FCF.

Most companies will invest their earnings in one or combination of 4 ways.
1) for the purpose of growth (new projects, new factories etc)
2) for upkeep and maintenance (Current factory repair etc) – Capital expense required for keeping the earnings intact. Roughly this is equal to depreciation.
3) Dividends
4) Share repurchase.

While calculating FCF, if we assume depreciation = capital expense required for the upkeep on an average, then earnings – investments required for growth is the real FCF that should be used in calculations. Without this new investment, FCF will not grow. So investment required for growth is not available to withdraw.

So how do you break down the capital that is required for growth vs maintenance?

Your thoughts will be greatly appreciated,
Sriram