While evaluating the whole entrerprise value of Falck Renewables using the discounted cash flow method I end up with a negative continuing value and economic profit due to the negative spread between weighted average cost of capital (WACC) and Return On Invested Capital's (ROIC) values. The final evaluation is very low (100M€ vs 900M€ from other methods). The debt/equity ratio of the company is 70%/30% and 90% of that debt is project financing.
The problem is that the massive amount of debt from project financing weighs heavily on the ratios and leads to very negative results. How can I handle the project financing debt to get a more consistent results?
Some thoughts:
- I could devalue the financial value of debt and investment using a project specific WACC (which would have to be lower than the company one)
- I could change the accounting of the debt | investment restating a the longest ones as non-operating assets and debts? Or by depreciating.