How long should the answer be?

Lead with a 60 to 90 second top-line, then expand if asked.

Which terminal value method is best?

Use the method that best fits the business and explain why.

Walk Me Through a DCF: 7-Step Answer Framework (2025)

A crisp walkthrough with assumptions, WACC, terminal value, and a 60-second answer plus a mini sensitivity table you can defend in interviews under pressure.

Answer framework (top-line first)

Lead with one sentence: a DCF values a company by discounting future unlevered cash flows. Then walk the interviewer through a clean, repeatable sequence.

7-step walkthrough

Frame the business and forecast period (typically 5 years).
Project revenue, margins, and reinvestment from clear drivers.
Compute unlevered free cash flow after taxes, capex, and working capital.
Estimate WACC with market-based inputs.
Calculate terminal value via perpetuity or exit multiple.
Discount UFCF and terminal value to present value.
Bridge enterprise value to equity value per share.

60-second answer

"A DCF values a company based on the present value of its future unlevered cash flows. I forecast revenue and margins, convert to UFCF after taxes, capex, and working capital, discount by WACC, add terminal value, then bridge from enterprise value to equity value per share."

Common pitfalls

Mixing levered and unlevered cash flows.
Inconsistent assumptions between WACC and terminal value.
Skipping working capital or reinvestment logic.

Practice drill

Timebox a 7-step explanation in 60 seconds, then add a sensitivity on WACC and terminal growth.