Types of DCF Models
There are several types of DCF valuation models, depending on the type of free cashflows used, such as discounted cashflow model using either free cashflows to firm (FCFF) or free cashflows to equity (FCFE) and discounted dividend model (DDM) that uses only projected dividends. In most industrial sectors and in most situations it is more common to use free cashflows to firm but in the banking industry the free cashflow to equity is the right choice. Then depending on the type of cashflow you decide to use different methods of estimating the discount factors are applied. For FCFE and DDM the cost of equity is used whereas for FCFF a more complicated approach of estimating the cost of capital (the blended cost of equity and debt) will ne required. Some models that use the cost of equity as their discount factor apply a constant discount rate for the whole forecast period whereas others use dynamically changing values.
FCFF Calculation
NOPAT 
Operating Income x (1 – Tax Rate) 
Depreciation & Amortization 
Positive item 
Capital Expenditure 
Negative item 
Change in Working Capital 
Increase is a negative item 


FCFE Calculation
Net Profit 
After Tax Profit 
Depreciation & Amortization 
Positive item 
Capital Expenditure 
Negative item 
Change in Working Capital 
Increase is a negative item 
Change in Bank Debt 
Increase is a positive item 

