[Patrick Ruppnig]

What should be taken into account in high inflation periods / high inflation countries by using the DCF model?

[PedroOrtiz]

During periods of high inflation, valuing companies and assets becomes a significant challenge due to the volatility of economic variables. It is essential to account for factors such as adjusting discount rates, projecting realistic cash flows, and assessing the impact of inflation on operating costs and profit margins. Additionally, the choice between nominal and real metrics can greatly influence the outcome of the valuation analysis. It would be interesting to discuss effective strategies to mitigate these risks and share experiences on how to navigate such economic environments.

[Nicolás]

In the case of Argentina, which is a case in of its self, we convert the P&L and Balance Sheet to USD. This helps with normalize the jumps one sees YoY. One should use the exchange rate from the BCRA (Central Bank). Because Argentina has had a lot of differences in its exchange rate, companies exporting good and services may see a jump in previous years. In that case, you should adjust accordingly and normalize earnings and EBITDA. I you want to get picky, you should also take into account the inflation in USD for Argentina, this information could be used for projections, but you can use the inflation rate of USA to facilitate calculations. The interesting aspect of doing projections in Argentina, is that it’s difficult to do them because of constant political and regulatory changes.
Side note, it’s better practice to use an average exchange rate, monthly or yearly depending on the information you have.

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