medium · Investment Banking
If a company's Days Sales Outstanding (DSO) increases from 30 to 45 days, what is the most direct impact on the DCF valuation?
- The terminal value increases since the company now carries more recorded assets on its balance sheet today.
- EBITDA decreases for that period because the underlying revenue is now being collected more slowly from customers.
- The Unlevered Free Cash Flow decreases in the year of the change due to a larger increase in Net Working Capital.
- The WACC increases because the company's core operations are now considered materially riskier by investors and lenders.
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