3 ideas
When a company has no earnings or operating history, start with total market size and a projected market share to get revenues. Then assume operating margins converge to a target set by mature peers, and derive reinvestment from a sales-to-capital ratio. The value comes from explicit assumptions about how the business will look once it is mature, not from extrapolating current numbers, which are negative or meaningless.
A standard DCF assumes the firm survives forever. For young or distressed firms, estimate the probability that the firm fails before reaching steady state, and the proceeds if it does, which are often a distress-sale value. Firm value = going-concern DCF × (1 − failure probability) + distress proceeds × failure probability. This keeps survival risk out of the discount rate, where it would otherwise be buried.
For cyclical and commodity firms, current earnings mostly reflect where the economy or commodity price sits in its cycle. Extrapolating them overvalues these firms at peaks and undervalues them at troughs. Valuation should use normalized figures, such as average margins across a full cycle or earnings at a normalized commodity price, so the result does not hinge on a macro forecast hidden inside the base-year numbers.