Risks and limitations of the discounted cash flow model in assessing the value of a company

Today, business valuation is a key tool for making managerial and investment decisions, especially in restructuring, strategic planning, and capital raising. One of the most common approaches to valuation is the discounted cash flow method (hereinafter referred to as DDP), which allows you to bring future cash flows to their current value. The purpose of this study is to identify the potential risks of using the DDP model to assess the market value of a business, using the example of the Toyota Motor Corporation, and to propose approaches to minimise them. The work used Toyota Motor Corporation's open financial reports, including revenue, cost, EBITDA, net profit, and macroeconomic indicators of the Japanese economy. The research methodology combines theoretical literature analysis and practical modelling: a DDP model was built based on data from a public manufacturing company, using elements of risk management (sensitivity analysis, scenario analysis, and modelling of the post-forecast period). The results of the study showed that Toyota Motor Corporation's net profit increased (+103.4%), and the forecast of free cash flows increased from 426,564 to 513,563 million yen in the period 2025-2030. With a discount rate of 10.59% and a fixed growth rate of 1.06%, the high sensitivity of the final cost to changes in key parameters, especially the discount rate and macroeconomic assumptions, was revealed. The results of the study show the high sensitivity of the final assessment to changes in key parameters, particularly the discount rate and growth rates, as well as the model's vulnerability to macroeconomic volatility and production risks.

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