If you are doing a DCF model and in most cases cash is the plug account on the pro-forma statements. What if you are doing a financial company and a large portion of their revenue comes from the interest they earn on that cash through various preferred shares and other investments. The problem is how can you account for that revenue on the cash in the DCF model because once you plug in cash you can't add anything else to net income or because it will be a circular reference... If anyone has experience with DCF models and could help me out that would be great... thanks
Try calculating the present value of the returns on the cash flow (e.g. PV of interests and dividends received.) Then incorporate the result in your model. Pension_Admin