> For the complete documentation index, see [llms.txt](https://help.modelreef.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://help.modelreef.io/help/financial-outputs-and-valuation/valuation-engine-overview.md).

# Valuation Engine Overview

This article explains how the **valuation engine** in Model Reef works.

You will learn:

* What inputs the valuation engine uses.
* How it converts cashflows into NPV, IRR and money multiple.
* How it treats FCFF and FCFE.
* How discount rates and terminal values are applied.

The valuation engine runs per scenario. Each scenario is a separate model with its own valuation outputs.

{% stepper %}
{% step %}

### What the valuation engine uses as inputs

For a given model or scenario, the valuation engine uses:

* **Forecast cashflows**
  * Derived from the Cash Waterfall and Cashflow Statement.
  * Can be used as FCFF or FCFE depending on configuration.
* **Discount rates**
  * Weighted Average Cost of Capital (WACC) for FCFF.
  * Equity discount rate for FCFE.
* **Terminal value assumptions**
  * Multiple based method.
  * Gordon growth method for equity cashflows.
* **Purchase price or entry equity** (optional)
  * Used to compute IRRs and money multiples.

All of these inputs are scenario specific.
{% endstep %}

{% step %}

### FCFF and FCFE inside the engine

You can value the business using either:

* **Free cashflow to the firm (FCFF)**
  * Cashflow available to both debt and equity holders before financing flows.
  * Discounted at WACC to obtain enterprise value.
* **Free cashflow to equity (FCFE)**
  * Cashflow available to equity holders after debt service and debt movements.
  * Discounted at the equity discount rate to obtain equity value.

Model Reef computes FCFF and FCFE from the same underlying forecast but with different adjustments for debt and equity flows.
{% endstep %}

{% step %}

### Discounting framework

The engine applies a time value of money framework consistent with Excel XNPV and XIRR style functions.

Key rules:

* Actual dates or model periods determine discount factors.
* Cashflows can be uneven over time.
* Discounting respects the model's chosen periodicity.
* FCFF uses WACC. FCFE uses the equity discount rate.

The result is a set of present values for each cashflow, including the terminal value, which are then summed to derive NPV.
{% endstep %}

{% step %}

### Terminal value in the engine

The engine supports two terminal value approaches:

* **Multiple method**
  * Apply a chosen multiple to a trailing or forward metric at the end of the forecast, such as EBITDA or FCFE.
* **Gordon growth method**
  * Apply a constant growth rate to FCFE and a constant discount rate to derive a perpetuity value.

In both cases the terminal value is treated as a cashflow in the final period and then discounted back to the present.
{% endstep %}

{% step %}

### Valuation outputs produced

For each scenario, the valuation engine produces:

* Enterprise and equity NPV.
* Project IRR and equity IRR.
* Money multiple on equity.
* Payback period (time to recover initial equity).
* Terminal value size and share of total value.

These outputs can be placed into dashboards, reports and scenario comparisons.
{% endstep %}

{% step %}

### Scenario based workflow

Because each scenario is a separate model, you can:

* Use different discount rates in each scenario.
* Change terminal value methods or assumptions per scenario.
* Compare NPV, IRR and money multiple across scenarios.
* Use one scenario as a base case and others as upside or downside cases.

The valuation engine recomputes automatically whenever assumptions or cashflows change.
{% endstep %}
{% endstepper %}

***

### Related articles <a href="#related-articles" id="related-articles"></a>

* [​Territory Rollout Planning](/use-cases/franchise-networks-franchisors-and-franchisees/territory-rollout-planning.md)
* ​[Build a Valuation Sensitivity Model](/how-tos/valuation/build-a-valuation-sensitivity-model.md)
* [​Importing from Google Finance and Yahoo APIs](/help/importing-from-google-finance-and-yahoo-apis.md)
* [Entering Accruals & Delays](/syntax/how-input-fields-work/entering-accruals-and-delays.md)