Free-Cash-Flow DCF

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/** Canonical TypeScript parity implementation for D18-F02 Intrinsic Valuation. */

type Input = Record<string, unknown>;
type Output = Record<string, unknown>;

function numberValue(value: unknown, name: string): number {
  if (typeof value !== "number" || !Number.isFinite(value)) throw new Error(`${name} must be a finite number`);
  return value;
}

function rate(value: unknown, name: string): number {
  const result = numberValue(value, name);
  if (result <= 0 || result >= 1) throw new Error(`${name} must be strictly between 0 and 1`);
  return result;
}

function growth(value: unknown, name: string, discountRate: number): number {
  const result = numberValue(value, name);
  if (result <= -1) throw new Error(`${name} must be greater than -1`);
  if (result >= discountRate) throw new Error(`${name} must be below the matching discount rate`);
  return result;
}

function series(value: unknown, name: string): number[] {
  if (!Array.isArray(value) || value.length < 1) throw new Error(`${name} must contain at least 1 value`);
  return value.map((item, index) => numberValue(item, `${name}[${index}]`));
}

function sameLength(left: unknown[], right: unknown[], leftName: string, rightName: string): void {
  if (left.length !== right.length) throw new Error(`${leftName} and ${rightName} must have the same length`);
}

function discount(value: number, discountRate: number, period: number): [number, number] {
  const factor = 1 / ((1 + discountRate) ** period);
  return [factor, value * factor];
}

function fcffDcf(data: Input): Output {
  const fcff = series(data.fcff, "fcff");
  const wacc = rate(data.wacc, "wacc");
  const terminalGrowth = growth(data.terminal_growth, "terminal_growth", wacc);
  const cash = numberValue(data.cash_and_non_operating_assets, "cash_and_non_operating_assets");
  const debt = numberValue(data.debt, "debt");
  const preferred = numberValue(data.preferred_equity, "preferred_equity");
  const minority = numberValue(data.noncontrolling_interest, "noncontrolling_interest");
  const shares = numberValue(data.diluted_shares, "diluted_shares");
  if (shares <= 0) throw new Error("diluted_shares must be positive");
  let pvExplicit = 0;
  const schedule = fcff.map((flow, index) => {
    const period = index + 1;
    const [discountFactor, presentValue] = discount(flow, wacc, period);
    pvExplicit += presentValue;
    return { period, fcff: flow, discount_factor: discountFactor, present_value: presentValue };
  });
  const terminalFcff = fcff.at(-1)! * (1 + terminalGrowth);
  const terminalValue = terminalFcff / (wacc - terminalGrowth);
  const [terminalDiscountFactor, pvTerminal] = discount(terminalValue, wacc, fcff.length);
  const enterpriseValue = pvExplicit + pvTerminal;
  const netEquityBridge = cash - debt - preferred - minority;
  const equityValue = enterpriseValue + netEquityBridge;
  return {
    state: "valued", method: "fcff-enterprise-dcf", schedule,
    pv_explicit_fcff: pvExplicit, terminal_fcff: terminalFcff, terminal_value: terminalValue,
    terminal_discount_factor: terminalDiscountFactor, pv_terminal_value: pvTerminal,
    terminal_value_share: enterpriseValue ? pvTerminal / enterpriseValue : 0,
    enterprise_value: enterpriseValue, net_equity_bridge: netEquityBridge,
    equity_value: equityValue, intrinsic_value_per_share: equityValue / shares,
  };
}

function ddm(data: Input): Output {
  const dividends = series(data.dividends, "dividends");
  if (dividends.some((value) => value < 0)) throw new Error("dividends must be nonnegative");
  const cost = rate(data.cost_of_equity, "cost_of_equity");
  const terminalGrowth = growth(data.terminal_growth, "terminal_growth", cost);
  let pvExplicit = 0;
  const schedule = dividends.map((dividend, index) => {
    const period = index + 1;
    const [discountFactor, presentValue] = discount(dividend, cost, period);
    pvExplicit += presentValue;
    return { period, dividend, discount_factor: discountFactor, present_value: presentValue };
  });
  const terminalDividend = dividends.at(-1)! * (1 + terminalGrowth);
  const terminalValue = terminalDividend / (cost - terminalGrowth);
  const [terminalDiscountFactor, pvTerminal] = discount(terminalValue, cost, dividends.length);
  const value = pvExplicit + pvTerminal;
  return {
    state: "valued", method: "multi-stage-dividend-discount", schedule,
    pv_explicit_dividends: pvExplicit, terminal_dividend: terminalDividend,
    terminal_value: terminalValue, terminal_discount_factor: terminalDiscountFactor,
    pv_terminal_value: pvTerminal, terminal_value_share: value ? pvTerminal / value : 0,
    intrinsic_value_per_share: value,
  };
}

function gordon(data: Input): Output {
  const dividendNext = numberValue(data.dividend_next, "dividend_next");
  if (dividendNext < 0) throw new Error("dividend_next must be nonnegative");
  const cost = rate(data.cost_of_equity, "cost_of_equity");
  const perpetualGrowth = growth(data.perpetual_growth, "perpetual_growth", cost);
  const spread = cost - perpetualGrowth;
  return {
    state: "valued", method: "gordon-growth", dividend_timing: "D1-next-period",
    discount_growth_spread: spread, capitalization_multiple: 1 / spread,
    intrinsic_value_per_share: dividendNext / spread,
  };
}

function residualIncome(data: Input): Output {
  const openingBook = numberValue(data.opening_book_value_per_share, "opening_book_value_per_share");
  if (openingBook <= 0) throw new Error("opening_book_value_per_share must be positive");
  const earnings = series(data.earnings_per_share, "earnings_per_share");
  const dividends = series(data.dividends_per_share, "dividends_per_share");
  const adjustments = series(data.nonowner_equity_adjustments_per_share, "nonowner_equity_adjustments_per_share");
  sameLength(earnings, dividends, "earnings_per_share", "dividends_per_share");
  sameLength(earnings, adjustments, "earnings_per_share", "nonowner_equity_adjustments_per_share");
  const cost = rate(data.cost_of_equity, "cost_of_equity");
  const terminalGrowth = growth(data.terminal_residual_income_growth, "terminal_residual_income_growth", cost);
  let book = openingBook;
  let pvExplicit = 0;
  const residualValues: number[] = [];
  const schedule = earnings.map((eps, index) => {
    const period = index + 1;
    const dividend = dividends[index];
    const adjustment = adjustments[index];
    if (dividend < 0) throw new Error("dividends_per_share must be nonnegative");
    const opening = book;
    const equityCharge = cost * opening;
    const residual = eps - equityCharge;
    const [discountFactor, presentValue] = discount(residual, cost, period);
    const closing = opening + eps - dividend + adjustment;
    if (closing <= 0) throw new Error("clean-surplus book-value roll-forward must remain positive");
    pvExplicit += presentValue;
    residualValues.push(residual);
    book = closing;
    return {
      period, opening_book_value_per_share: opening, earnings_per_share: eps,
      dividends_per_share: dividend, nonowner_equity_adjustment_per_share: adjustment,
      equity_charge_per_share: equityCharge, residual_income_per_share: residual,
      discount_factor: discountFactor, present_value: presentValue,
      closing_book_value_per_share: closing,
    };
  });
  const terminalResidual = residualValues.at(-1)! * (1 + terminalGrowth);
  const continuingValue = terminalResidual / (cost - terminalGrowth);
  const [terminalDiscountFactor, pvContinuing] = discount(continuingValue, cost, earnings.length);
  const value = openingBook + pvExplicit + pvContinuing;
  return {
    state: "valued", method: "residual-income", schedule,
    pv_explicit_residual_income: pvExplicit, terminal_residual_income_per_share: terminalResidual,
    continuing_value: continuingValue, terminal_discount_factor: terminalDiscountFactor,
    pv_continuing_value: pvContinuing, continuing_value_share: value ? pvContinuing / value : 0,
    closing_book_value_per_share: book, intrinsic_value_per_share: value,
  };
}

function eva(data: Input): Output {
  const openingCapital = numberValue(data.opening_invested_capital, "opening_invested_capital");
  if (openingCapital <= 0) throw new Error("opening_invested_capital must be positive");
  const nopat = series(data.nopat, "nopat");
  const investment = series(data.net_investment, "net_investment");
  sameLength(nopat, investment, "nopat", "net_investment");
  const wacc = rate(data.wacc, "wacc");
  const terminalGrowth = growth(data.terminal_eva_growth, "terminal_eva_growth", wacc);
  let capital = openingCapital;
  let pvExplicit = 0;
  const evaValues: number[] = [];
  const schedule = nopat.map((periodNopat, index) => {
    const period = index + 1;
    const opening = capital;
    const capitalCharge = wacc * opening;
    const periodEva = periodNopat - capitalCharge;
    const roic = periodNopat / opening;
    const [discountFactor, presentValue] = discount(periodEva, wacc, period);
    const closing = opening + investment[index];
    if (closing <= 0) throw new Error("invested-capital roll-forward must remain positive");
    pvExplicit += presentValue;
    evaValues.push(periodEva);
    capital = closing;
    return {
      period, opening_invested_capital: opening, nopat: periodNopat,
      net_investment: investment[index], capital_charge: capitalCharge, roic,
      roic_wacc_spread: roic - wacc, eva: periodEva,
      discount_factor: discountFactor, present_value: presentValue,
      closing_invested_capital: closing,
    };
  });
  const terminalEva = evaValues.at(-1)! * (1 + terminalGrowth);
  const continuingValue = terminalEva / (wacc - terminalGrowth);
  const [terminalDiscountFactor, pvContinuing] = discount(continuingValue, wacc, nopat.length);
  const marketValueAdded = pvExplicit + pvContinuing;
  const enterpriseValue = openingCapital + marketValueAdded;
  return {
    state: "valued", method: "economic-value-added", schedule,
    pv_explicit_eva: pvExplicit, terminal_eva: terminalEva, continuing_value: continuingValue,
    terminal_discount_factor: terminalDiscountFactor, pv_continuing_value: pvContinuing,
    market_value_added: marketValueAdded,
    continuing_value_share: enterpriseValue ? pvContinuing / enterpriseValue : 0,
    closing_invested_capital: capital, enterprise_value: enterpriseValue,
  };
}

const calculators: Record<string, (data: Input) => Output> = {
  "D18-F02-A01": fcffDcf,
  "D18-F02-A02": ddm,
  "D18-F02-A03": gordon,
  "D18-F02-A04": residualIncome,
  "D18-F02-A05": eva,
};

export function calculate(topicId: string, data: Input): Output {
  const calculator = calculators[topicId];
  if (!calculator) throw new Error(`unsupported topic_id: ${topicId}`);
  if (!data || Array.isArray(data) || typeof data !== "object") throw new Error("data must be an object");
  return calculator(data);
}