You will be able to present a valuation as a range driven by the inputs that matter most.
Broker reports put a target price on the cover: S$1.85, say, as if the analyst knew. Inside, the DCF that produced it depends on a discount rate and a growth rate that, as lesson 8.1 showed, can each move the answer by 15% or more with a one-point change. A single target price hides that. A professional valuation shows it.
Figures are made up and in S$ per share unless stated.
A sensitivity table shows value per share across a grid of two inputs. The usual pair for a DCF is the discount rate down the side and long-term growth across the top, because those are the two that move the answer most.
Here is Marcus's table for Larkspur, with everything else at his base case. At a WACC of 8%, long-term growth of 1.5%, 2% and 2.5% gives values of about 1.98, 2.11 and 2.27. At 9%, about 1.70, 1.80 and 1.91. At 10%, about 1.48, 1.56 and 1.64.
So with inputs that are all reasonable, Larkspur is worth anywhere from about S$1.48 to about S$2.27. His base value of S$1.80 sits in the middle. Today's price of S$1.60 falls inside the range, close to the 10% row.
In Excel, the Data Table tool under What-If Analysis builds this grid from one formula. In Google Sheets, you can build it by hand: copy the valuation into a small block that reads its WACC and growth from the row and column headers. Mark the cell nearest today's price so the comparison is visible at a glance.
The sensitivity table varies two inputs while everything else stays fixed. Real outcomes don't work that way. In a downturn, revenue falls, margins fall with it because of fixed costs, and working capital ties up cash for longer. A scenario changes all the related drivers together, in a way that tells one consistent story.
Marcus built three, keeping the discount rate at 9%.
His base case is the forecast from module 7: growth fading from 8% to 3%, margin 13.5%, long-term growth 2%. Value about S$1.80.
His bear case has a chip equipment downturn in FY6, with revenue down 10%, followed by growth of 2%, 4%, 3% and 3%, an operating margin of 11% throughout, and long-term growth of 1.5%. That's roughly what Larkspur's own FY4 looked like, carried for five years. Value about S$1.05.
His bull case has revenue growth of 12%, 10%, 8%, 6% and 4%, as new parts win business, with a margin of 15% and long-term growth of 2.5%. Value about S$2.40.
The scenarios span S$1.05 to S$2.40, a much wider range than the sensitivity table. That's typical. The business drivers often matter more than the valuation inputs, especially for a cyclical company.
Build both tools and compare. Which input moves value most? For Larkspur, the margin assumption moves value more than any single valuation input. With everything else at the base case, an 11% margin gives about S$1.33 and a 15% margin about S$2.07, a wider swing than moving the WACC all the way from 8% to 10%. The second biggest is whether a downturn arrives early in the forecast.
That tells Marcus where to spend his research hours: on the evidence for Larkspur's margin through a cycle, and on its customers' spending plans. Another hour refining the equity risk premium would change little. Another hour reading the two big customers' results calls might change a lot.
Benjamin Graham, the investor and author who taught Warren Buffett, used the phrase margin of safety for the gap between the price you pay and a cautious estimate of value. The idea is that your estimate will be wrong in ways you can't foresee, so you want enough room that being wrong doesn't ruin you.
The cautious estimate isn't your base case. It's the value you'd still believe in if several things went against you. For Larkspur, a cautious figure might be the 10% WACC and 1.5% growth corner of the table, about S$1.48, or the bear case at about S$1.05. At S$1.60, the price sits above both. Measured that way, Larkspur offers no margin of safety at all, even though the base case is 12% above the price.
That's not a reason to sell, and it isn't a reason to buy. It's a fact about the risk. Marcus already owns Larkspur, at S$8,000 of his portfolio. The range tells him that a bad cycle could cost him around a third of that holding, about S$2,750 at the bear value, and that's the figure that belongs in his position limits in module 11, in lesson 11.1, Position sizing: equal, conviction and volatility weights.
For the activity, build a sensitivity table of value per share against WACC and long-term growth for your company, and mark today's share price on it.
Build a sensitivity table of value per share against WACC and terminal growth, and mark today's price on it.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).