The first of our DCF steps is to forecast the three cash flows up until the steady state period Now that's normally for the first 5 or 10 years Let's assume it's 10 years in our example You might then ask, "hang on, the company I'm trying to value, it's not going to exist for just 10 years"? What about the cash flows it's going to generated from years 11 onwards? Well if I jump to step 3 quickly That's represented by the terminal value We need to calculate this terminal value and it will represent all of those cash flows from years 11 onwards Okay, so I've got all of these cash flows in the future I'm now going to ask, my financiers (my debtholders and shareholders), what kind of returns are they looking for? So I workout an average of the returns thereafter and let's say that's 10% So if they're after a 10% return, my cash flows going into the future (up to year 10 and thereafter) Must represent the 10% return So I now take that 10% (my weighted average cost of capital) and I use that to discount those future cash flows to today So the cash flow in a year's time, I roughly take 10% off that and that will represent the present value of that cash flow Once I've discounted all of those future cash flows, that gives me the enterprise value And I then walk from the enterprise value to the implied share price using the EV equity bridge (your enterprise value to equity bridge)