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Equity bridge in lib/dcf_engine.py

The equity bridge is the final step of the valuation, implemented within the DCF engine module. It converts the discounted operating value of the firm into a per-share equity value.

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The bridge

Operating value of the firm (PV of FCFFs + PV of terminal value)
− Book value of debt
+ Cash and marketable securities
− Minority interests
− Employee options value (from option_value.py)
× (1 − failure probability) (from failure_rate.py)
÷ Shares outstanding
= Estimated value per share

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Key function

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equity_bridge()

Parameters:
  • operating_value — present value of the firm (from discounting)
  • debt — book value of debt
  • cash — cash and marketable securities
  • minority_interests — minority interest claims (if any)
  • option_value — total employee option value (from option_value.py)
  • failure_probability — probability of corporate failure (from failure_rate.py)
  • distress_proceeds — recovery value in failure scenario
  • shares — shares outstanding
Returns: Dictionary with equity value, value per share, and each bridge component.