Which has a greater impact on a company’s DCF valuation – a 10% change in revenue or a 1% change in the discount rate?
Answer
Most of the time the change in revenue will have a greater impact, since a change in revenue affects the revenue and EBITDA of all forecasted years and terminal value as a result.
If they say 5% or less you could say it’s hard to tell then explain that if the disparity was a bit bigger it would obviously be revenue.
Then if we say that both were 1%, it flips more certainly towards the discount rate being more impactful.
Why this matters to bankers
When forecasting, it’s important for bankers to understand where their most sensitive levers are. It’s thinking “okay if I do y then x will happen”.