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).
• 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.

Output format

When citing DCF output to a user, include:

• EV (smart-formatted, e.g. $84.3M)
• Implied EV/EBITDA multiple
• Sensitivity band (low / base / high EV)
• Key assumptions used (WACC, terminal growth, tax rate, CapEx %)
• A one-sentence credibility note tying back to evidence from filings — anchored with [N] citations to the source documents.

Example:

DCF Enterprise Value: $84.3M base, $67.1M low / $104.2M high (WACC 9.5% ± 1.5%, terminal growth 2.5% ± 0.5%). Implied EV/EBITDA = 10.9x base. Key driver: revenue growth assumption of 4.5% (5-year CAGR from FY20-FY25 [1]). Credibility caveat: the FY25 financials carry a going-concern qualification [2]; the DCF is a useful scenario but covenant/liquidity evidence should override it for entry-price decisions.