CBV Institute

Why Dynamic Cashflow Modelling Should be in a Valuator’s Toolkit

CBV Congress 2022

Vancouver, B.C.

June 7, 2022

Abstract: Valuation is done in a dynamic business environment in which the future is a range possibilities. Value estimates using cost and market comparable methods may work in some situations but offer little insight into how uncertainty about the future influences value. A dynamic cash flow model extends the conventional static cash flow model method to recognize how uncertainty about the future interacts with the structure of a cash flow stream to influence value, operating policy, and risk.

The session will discuss the four basic components of a dynamic model – uncertainty model, cash flow description, numerical method, and risk adjustment approach – and how they are combined to estimate the value of a cash flow stream. Two case studies from private equity and the mining industry are used to illustrate the potential of dynamic cash flow models and how a valuator risks: June 7, 2022 missing important value influences by ignoring a dynamic valuation approach.

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