Investigation: Discounted cash flow valuation analysis open to manipulation

EDMONTON, AB – A News Default Swap (NDS) investigation has uncovered troubling revelations about discounted cash flow (DCF) valuation models.

These models are prominently used in the start-up world during investment pitches and due diligence.

After analyzing data provided by 27 start-up companies, NDS discovered that 24 of the companies had used a DCF analysis to render financial projections as part of business plans, grant applications and pitch decks.

The main metric that was subjected to the most manipulation was revenue. Revenue estimates were consistently manipulated to reflect the expectations of the intended recipient of the projections.

In some instances, projections were completely fabricated and often painted an overly optimistic view of the business. The evidence of manipulation was particularly stark during years 3 through 5 of the projections.

Despite the findings of this investigation, NDS predicts these forecasting methods will persist for many more years.