medium · Investment Banking valuation-core

If a company's Days Sales Outstanding (DSO) increases from 30 to 45 days, what is the most direct impact on the DCF valuation?

1. The terminal value increases since the company now carries more recorded assets on its balance sheet today.
2. EBITDA decreases for that period because the underlying revenue is now being collected more slowly from customers.
3. The Unlevered Free Cash Flow decreases in the year of the change due to a larger increase in Net Working Capital.
4. The WACC increases because the company's core operations are now considered materially riskier by investors and lenders.

Sign up free to see the explanation and track your rank →