Top down
DCFForecasting revenue by starting from the size of the market and working down to the company's share of it.
A top down forecast begins with the total addressable market, applies a growth rate to it, and then assumes a market share for the company. Revenue falls out of the multiplication.
Its virtue is that it forces an explicit statement about the competitive environment, and it is often the only route available for a new product or a market where the company has no history to extrapolate.
Its weakness is that small changes in assumed share produce enormous changes in revenue, and market size figures are frequently sourced from industry reports with their own incentives. A forecast implying a company takes ten points of share in three years is making a claim about competitors that should be argued rather than assumed.
The strongest forecasts build both ways and reconcile. If a top down and a bottom up build land close to each other, the number is defensible; if they diverge sharply, the divergence tells you exactly which assumption to interrogate.
Worked example
A market worth 8,000 growing 4% a year reaches 9,733 in five years. Assuming share rises from 6% to 9% gives revenue of 876.
Those three points of share are the entire forecast. At constant 6% share, revenue would be 584, so the share assumption alone adds 50%.
That is a claim about competitors losing ground, and it should be argued rather than typed into a cell.