Interactive Discounted Cashflow Valuation
Use Inferential Investor's iCoT technique to perform a detailed valuation modelling exercise on any company with AI's assistance.
Last updated: 19 October 2025
Objective:
Value any stock using DCF techniques within a pre-specified interactive framework. Assess and agree valuation assumptions, build forecasts collaboratively with AI over different horizons, calculate the valuation and a sensitivity matrix and receive insights on the implications of the valuation for the market’s assessment of the stock.
Explanation:
This valuation workflow turns DCF from a black box into a guided conversation. We progress step-by-step with explicit user confirmation, using ChatGPT’s Advanced Data Analysis mode to fetch, clean, and compute inputs. Each stage is anchored in first principles from published finance theory - capital structure, cost of capital, operating leverage, capital intensity and working capital mechanics, and translated into investor-ready tables. The process is deliberately interactive: AI proposes assumptions (WACC, growth, margins, CapEx intensity), you adjust them, and we instantly recompute. At every step, we log sources for auditability and mark anything “ND” when data can’t be verified, so you always know what’s fact, what’s estimate, and what needs a better input. Where inputs can’t be retrieved, alternative actions are recommended.
Where AI adds real lift is in synthesis and guardrails. Advanced Data Analysis handles the heavy lifting including pulling historicals, calculating derived metrics, and projecting cash flows, while the assistant overlays narrative insight: how management’s guidance lines up with the model, whether margin expansion is plausible given segment mix, and how growth affects free cash conversion.
The prompt also runs sensitivities across WACC and terminal growth scenarios to show what the market is implicitly pricing, then tees up optional modules to follow through with further analysis such as earnings-call sentiment, news scans, or peer comps to pressure-test the valuation. The result is a transparent, academically grounded DCF that’s able to be used by any investor, regardless of experience level, fast to iterate, easy to audit and adjust, and enriched by AI-driven context.
As always, be aware that models can make mistakes. At each step, examine the response and challenge information or conclusions that appear erroneous before proceeding to any subsequent steps. If in doubt use a second model with the same prompt to verify the information and generate challenge questions and answers (CoVe process) to correct interpretations of data.
Link to blog post explanation:
N/A
Preferred Model(s):
Best: ChatGPT-5 Plus with Advanced Data Analysis (PLUS subscription required). The prompt can be rub without ADA as well.
Important Execution Notes:
Insert the ticker, company name and exchange where indicated and press run. The prompt will guide you through step by step in using Inferential Investor’s iCoT Q&A framework.
Sample Output:
This sample output shows both AI and user interactions through the entire workflow to produce a DCF valuation for Microsoft.
Copy/Paste Prompt Set:
Important note: Subscribers can use this prompt set for their own analysis. However, the prompt is copyrighted by The Inferential Investor, paywalled, and must not be shared without permission.
ROLE
Your are an assistant equity research analyst at a Wall St investment bank. You will be working with me in an interactive, step by step manner to perform a discounted cashflow valuation of the identified stock. The following framework sets out the task steps we will be undertaking together. Undertake one step at a time with confirmation required before moving to the next.
STOCK TO BE VALUED
Insert ticker, exchange, name: [INSERT]
RULES TO BE FOLLOWED:
1. Undertake one step at a time with user confirmation required before moving to the next.
2. If any data cannot be accessed/retrieved, mark as “not disclosed” or “ND”, request user to provide or permission to retrieve from published accounts.
3. Do not make up data. If unsure, request user input.
4. Provide links to each data point retrieved for auditing.
TASK STEPS
1. Valuation Parameters: Retrieve background data for the company that will support the valuation and present to the user for confirmation before proceeding to the next step. Present in a concise table to the user for review: Company name, Market Capitalization, latest net debt, total diluted shares outstanding, beta, terminal growth rate (default 3%), Net Debt / Total Capital (equity plus debt) as a percentage, company tax rate for the country.
2. WACC Calculation: Calculate the cost of equity, cost of debt, after tax cost of debt and WACC using the parameters above and a risk free rate assumption of 4% and MRP of 6%. Show calculations. Retrieve web based sources of the WACC for the company and present as comparisons with sources. Highlight where assumptions differ. Ask for any adjustments before proceeding.
2. Historical Financials Retrieval: Retrieve historical financials for the company from reputable sources. Present in a table for confirmation as follows:
Years: T-2, T-1, T
Revenue
Gross Profit
Gross Margin % (calculate as Gross Profit / Revenue *100)
Operating Expenses (calculate as EBIT - Gross Profit)
EBITDA
Depreciation & Amortization
EBIT
Current Assets
Current Liabilities
Net Working Capital (calculate as Current Assets - Liabilities)
Capital Expenditures
Capex as % of Revenues (calculate as CapEx / Revenues * 100)
3. Insights: Analyze and provide narrative insights on growth rates and trend in revenues and EBIT, margin trends, capital intensity trends (Net WC and CapEx).
4. Forecast construction (Years 1-5): Construct a plausible set of forecasts to set against the historical financials for the next 5 years having reference to the historical financials and narrative insights obtained. Use financial ratio analysis to assist in this construction. Provide an explanation of each assumption you have made in constructing these forecasts. Present the forecasts against the historical results in a new table as follows and ask for user adjustments to assumptions to recompute as reuqired:
Revenue
Revenue Growth %
EBITDA
EBITDA growth %
EBITDA margin %
NOPAT (calculated as EBITDA * (1 - tax rate)
less: change in working capital
less: capital expenditures
Free Cashflows
5. Forecast construction (Years 6-10): Construct free cashflow forecasts and append to the table for the years 6-10 gradually reducing the growth rate of revenue and EBITDA back to the terminal growth rate by year 10.
6. DCF Valuation: Compute the DCF valuation for the company from the free cashflow forecasts showing all calculations. Show in a table:
Present value of cashflows (Years 1-10)
Terminal Value:
PV of the company:
less: Net Debt
= Equity Value
Equity Value per share (calc as Equity Value / Diluted Shares outstanding)
Current Share price (retrieve the current share price from updated market data and present the share price chart as verification)
% overvalued / undervalued
7. Sensitivity: Construct a sensitivity matrix table showing the Equity Value per share of the company under scenarios with WACC ranges of 7-12% at 1% intervals and Terminal Growth rates of 1% - 5%. Highlight where the current share price sits in this matrix.
8. Valuation Conclusions: From the analysis, provide a summary of the likilhood that the stock is over or undervalued, your assessed confidence rating based on the volatility of historical cashflows, analysis of whether it presents as an interesting investment opportunity or not based on assessed growth, risk considerations, cashflow volatility, valuation versus current share price.
9. Next Steps: Provide options to extend the analysis to: earnings transcript analysis of issues, growth and guidance (attach latest 1-3 call transcripts), news analysis from the last 8 weeks, fianncial statement analysis (attach latest financial report 10-Q or 10-K) or perform a comparative valuation assessment vs peers.