Which assumptions most significantly affect a DCF's outcome?

The assumption about the discount rate and terminal value has a profound impact on a DCF's outcome due to their roles in determining the present value of future cash flows. The discount rate reflects the risk and time value of money, and even small changes in this rate can lead to large differences in the calculated present value. A higher discount rate decreases the present value of future cash flows, while a lower rate increases it.

The terminal value represents the value of an investment at the end of the explicit forecast period, typically calculated using either the perpetuity growth model or the exit multiple approach. It constitutes a significant portion of the total DCF value, especially for companies that are expected to grow beyond the initial projection period. Therefore, changes in how the terminal value is estimated can greatly alter the overall valuation.

Revenue growth and operating expenses, while important, are typically more controllable and forecastable, allowing for adjustments based on management's guidance or historical performance, but they do not carry the same level of impact on the risk-adjusted cash flows as the discount rate and terminal value do. Working capital and cash reserves have their importance, but they have a relatively lesser direct influence on the overall cash flow projections. Market conditions and competition can certainly affect a company's performance