The simple model may say that the web site cash flow has been increasing at a historical geometric mean growth rate of 1.28 or 28% per period. The website owner may assume that the amount of work put into the site will continue at the same pace, the historical internet market factors (like total usage) and site-specific market factors (like product or topic popularity) will remain the same. The last year of available numbers used for the historical growth rate calculation was $5,000.00 in free cash flow, so period one of the forecast will be 5000 x 1.28 = 6,400. The simple cash flow forecast will look like the following for the first three periods:

This model should only be used if there is absolutely no information on the future of the business and in all likeliness nothing will change. The result of the model is limited, but the full valuation calculation is included with the accompanying spreadsheet for the purpose of “quick and dirty” analysis.

Let's take a look at a much-less simple method for using the discounted cashflow model for website valuation.

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