How does IDW S1 differ from a standard DCF?
A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Three key differences: (1) Personal taxes – both cash flows and discount rate are adjusted for Abgeltungsteuer (~26.375%). (2) Valuation function – objektivierter vs. subjektiver vs. Schiedswert determines which assumptions are allowed. (3) FAUB parameters – the FAUB provides guidance on risk-free rate (Svensson curve) and MRP ranges that practitioners must follow. (4) Documentation requirements are significantly higher than for a standard financial model.
WHAT INTERVIEWERS LISTEN FOR
- ✓Personal taxes adjustment
- ✓Valuation function types
- ✓FAUB parameter guidance
- ✓Higher documentation requirements
COMMON MISTAKES
- ✗Ignoring Abgeltungsteuer
- ✗Confusing objektivierter with subjektiver
- ✗Omitting FAUB risk-free rate
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RELATED QUESTIONS
- Explain the Ertragswertverfahren.
- How does the tax adjustment work in IDW S1?
- What changed in the IDW ES 1 n.F. (2024 update)?
- How do you handle non-betriebsnotwendiges Vermögen (non-operating assets)?
- Why does the IDW S1 Ertragswertverfahren discount flows to equity holders directly, and how does the Tax-CAPM differ from a standard CAPM cost of equity?
- What is the Wachstumsabschlag in the IDW S1 terminal value, and why is it often below the inflation rate?