The Daily Technical #43: If you have a balance sheet and must choose between the income statement or cash flow statement, which would you pick?

Good morning. Welcome to the 43rd edition of The Daily Technical. You’re here for one reason so let’s dive in.

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OVERVIEW OF YESTERDAY’S QUESTION
When would a DCF be an inappropriate valuation method?

Practically, when you don't have access to financial statements, a credible DCF analysis valuation is difficult, and a comps analysis might be more realistic. So if you have a data point such as revenue or EBIT, a comps analysis is easier to implement.

In addition, DCFs may be unfeasible when the company is not expected to generate positive cash flows for the foreseeable future. Here, much of the company ’s value is weighted towards the distant future, and the DCF becomes less credible.

Common Mistakes

1. Ignoring Available Data: Sometimes, students overlook the usable data they have. If you don’t have access to the financial statements, a credible DCF is difficult. Always leverage the information at hand.

Key Takeaways / TLDR

• Use comps analysis when limited to revenue or EBIT; it's practical and informative.

• Avoid DCF if the company lacks foreseeable positive cash flows; it's unreliable.

• Justify your valuation method based on data limitations and realistic feasibility.

TODAY’S QUESTION
If you have a balance sheet and must choose between the income statement or cash flow statement, which would you pick?

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THAT’S A WRAP
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See you tomorrow,

The HirePrep Team