Abstract
All steps of the McKinsey model are outlined. Essential steps are: calculation
of free cash flow, forecasting of future accounting data (profit and loss accounts and
balance sheets), and discounting of free cash flow. There is particular emphasis on
forecasting those balance sheet items which relate to Property, Plant, and Equipment.
There is an exemplifying valuation included (of a company called McKay),
as an illustration.
Key words: Valuation, free cash flow, discounting, accounting data
JEL classification: G31, M41, C60
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