DCF Valuation with Negative Free Cashflow

Fundamental Analysis
1

Hi,
Free cash flow is an important factor for DCF validation. Normally we take either 3 years or 5 years average FCF in DCF calculation. But I am not sure if the last 3 years or 5 years FCF is negative. Then how to consider the FCF for DCF calculation.
Request for your suggestions.

1 Like
2

This is one of the drawbacks of DCF, does not work for negative FCF. You need to switch to something like relative valuation under such a circumstance.

2 Likes
3

Can you please suggest which valuation you are mentioning as relative valuation, is it Relative PE valuation or comparative company valuation?

4

By relative valuation, I mean valuation by comparison.

1 Like
5

Thanks for the suggestion.