Case 060DCF and intrinsic valueHard
How would you value a company with negative cash flows? Value Zyvora Mobility, a fast-growing loss-maker, with an eight-year DCF and an exit multiple, and show where the value comes from.
1The situation
Zyvora Mobility runs electric delivery fleets for online grocers. Revenue is Rs 200 crore and is expected to grow 40%, 35%, 30%, 25% and 20% over the next five years, then 15% a year to year 8. EBITDA margin is minus 25% today and is expected to rise in equal steps to plus 15% by year 5 and 20% by year 8.
Capex is 8% of revenue, depreciation 6% of revenue, and net working capital 5% of each year's increase in revenue. Tax is 25%, and Zyvora has Rs 300 crore of tax losses carried forward; new losses add to the pool. The weighted average cost of capital is 14%, and similar businesses change hands at about 12x EBITDA.
2Your task
Value Zyvora with a DCF to year 8 and a 12x exit multiple, and show which assumption the value rests on.
Quick check
Roughly what share of Zyvora's value will come from the terminal value?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
Zyvora is worth about Rs 921 crore, and about 102% of that is the terminal value. Eight years of free cash flow are worth about Rs -22 crore in today's money: the burn in years 1 to 4 cancels the cash of years 5 to 8. The terminal value of Rs 2,690 crore is worth Rs 943 crore today. So the year-8 margin, and the multiple applied to it, are the assumptions to defend.
Step 1How do you value a company whose cash flows are negative today?
Picture a young doctor still in training. She earns little now and owes fees, but you would not call her worthless: you value the career she will have once qualified. A loss-making company is valued the same way: forecast until the business is mature, value it at that point, and discount everything back, losses included. Multiples of today's earnings are useless because today's earnings are negative. Revenue multiples are a shortcut for the same idea, and the DCF makes the path explicit.
Two details matter for a loss-maker. Tax: Zyvora's tax losses carried forwardPast losses a company may set against future taxable profit, so it pays no tax until they are used up. Rules on how long they last vary, so check the current law. start at Rs 300 crore and grow as EBIT stays negative, peaking at Rs 455 crore, so Zyvora pays no tax through year 8. And working capital: fast growth ties up cash every year even after profits arrive. Free cash flow is EBITDA less tax, capex and the increase in working capital, and it stays negative until year 5.
| Year | Revenue | EBITDA margin | EBITDA | Capex | NWC | Tax | FCF |
|---|---|---|---|---|---|---|---|
| 1 | 280.0 | -17.0% | -47.6 | -22.4 | -4.0 | -0.0 | -74.0 |
| 2 | 378.0 | -9.0% | -34.0 | -30.2 | -4.9 | -0.0 | -69.2 |
| 3 | 491.4 | -1.0% | -4.9 | -39.3 | -5.7 | -0.0 | -49.9 |
| 4 | 614.2 | 7.0% | 43.0 | -49.1 | -6.1 | -0.0 | -12.3 |
| 5 | 737.1 | 15.0% | 110.6 | -59.0 | -6.1 | -0.0 | 45.5 |
| 6 | 847.7 | 16.7% | 141.3 | -67.8 | -5.5 | -0.0 | 67.9 |
| 7 | 974.8 | 18.3% | 178.7 | -78.0 | -6.4 | -0.0 | 94.4 |
| 8 | 1,121.0 | 20.0% | 224.2 | -89.7 | -7.3 | -0.0 | 127.2 |
Step 2Where does the value actually come from?
Discount each year at 14% and add them up: Rs -22 crore. The terminal value is 12x year-8 EBITDA of Rs 224 crore, Rs 2,690 crore, worth Rs 943 crore today. Enterprise value is about Rs 921 crore, and the terminal value is 102% of it: the forecast years, taken together, are worth slightly less than nothing. That is normal for a business at this stage, and it is the point the interviewer wants you to see.
Step 3How do you check the terminal value is not doing too much?
Back out the growth it implies. A terminal value of Rs 2,690 crore on year-8 free cash flow of Rs 127 crore at 14% implies perpetual growth of about 8.9%. That is high for forever, and it flatters further because year-8 cash flow carries no tax; once the losses run out, a quarter of EBIT goes to tax. A careful answer says 12x is defensible only if growth stays well above inflation for years after year 8, and shows the value at 10x too.
| Year-8 margin | 10x exit | 12x exit | 14x exit |
|---|---|---|---|
| 15% | 528 | 646 | 764 |
| 20% | 764 | 921 | 1,078 |
| 25% | 992 | 1,188 | 1,385 |
Close with the view. The DCF does not pretend to know Zyvora's value to the rupee; it shows that the value is a bet on reaching a 20% margin at scale. So the diligence goes there: unit economics per vehicle today, how margins move as routes get denser, and what the most mature city in Zyvora's network already earns. That evidence, not the discount rate, decides the answer.
Where candidates lose it
Candidates either refuse to run a DCF because cash flows are negative, or run one and stop at the total. The question is asking you to show that the terminal value carries the value and to say what that means for the diligence.
The second miss is taxing the early profits. With Rs 300 crore of losses carried forward, and more added in the loss years, Zyvora pays no tax in the forecast, and forgetting that understates value.
What the interviewer asks next
- Use a perpetuity growth terminal value of 5% instead of 12x. What changes, and which method would you trust here?
- Zyvora needs to raise Rs 250 crore to fund the losses. How does that enter a per-share value?
- Why might you use a higher discount rate in the early years than in the terminal value?
- What would a revenue multiple cross-check look like for Zyvora?
Asked at Credit Suisse, Investment Banking, New York, 2025 (Wall Street Oasis): the interviewer asked me was "how would you value a company with negative cash flows?"
Company names and figures are illustrative.