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"""Exact-math verification tests for the DCF engine.
Each scenario independently recomputes the expected projection, discounting,
terminal value, enterprise value, equity value, and per-share intrinsic value,
then asserts the implementation matches. This makes the test itself auditable.
"""
import pandas as pd
import pytest
from app.services.data_service import _run_dcf
def _fcf_series(prior: float, base: float) -> pd.Series:
"""Return a two-point historical FCF series: prior -> base (most recent)."""
return pd.Series([prior, base], index=pd.to_datetime(["2023-09-30", "2024-09-30"]))
def _expected_dcf(
base_fcf: float,
growth_rate: float,
wacc: float,
terminal_growth: float,
projection_years: int,
shares_outstanding: float,
total_debt: float = 0.0,
cash_and_equivalents: float = 0.0,
preferred_equity: float = 0.0,
minority_interest: float = 0.0,
) -> dict:
"""Independent reference implementation of the DCF math used by `_run_dcf`."""
projected = [base_fcf * ((1 + growth_rate) ** yr) for yr in range(1, projection_years + 1)]
discounted = [fcf / ((1 + wacc) ** (year - 0.5)) for year, fcf in enumerate(projected, start=1)]
fcf_pv_sum = sum(discounted)
terminal_fcf = projected[-1] * (1 + terminal_growth)
terminal_value = terminal_fcf / (wacc - terminal_growth)
terminal_value_pv = terminal_value / ((1 + wacc) ** (projection_years - 0.5))
enterprise_value = fcf_pv_sum + terminal_value_pv
net_debt = total_debt - cash_and_equivalents
equity_value = enterprise_value - net_debt - preferred_equity - minority_interest
intrinsic_value_per_share = equity_value / shares_outstanding
return {
"fcf_pv_sum": fcf_pv_sum,
"terminal_value_pv": terminal_value_pv,
"enterprise_value": enterprise_value,
"net_debt": net_debt,
"equity_value": equity_value,
"intrinsic_value_per_share": intrinsic_value_per_share,
}
_APPROX = pytest.approx
def test_run_dcf_one_year_with_equity_bridge() -> None:
"""1-year projection with debt, cash, preferred, and minority claims."""
fcf = _fcf_series(100.0, 105.0) # exact 5% growth
expected = _expected_dcf(
base_fcf=105.0,
growth_rate=0.05,
wacc=0.10,
terminal_growth=0.03,
projection_years=1,
shares_outstanding=10.0,
total_debt=20.0,
cash_and_equivalents=5.0,
preferred_equity=2.0,
minority_interest=3.0,
)
result = _run_dcf(
fcf_series=fcf,
shares_outstanding=10.0,
wacc=0.10,
terminal_growth=0.03,
projection_years=1,
total_debt=20.0,
cash_and_equivalents=5.0,
preferred_equity=2.0,
minority_interest=3.0,
)
assert result["base_fcf"] == 105.0
assert result["growth_rate_used"] == _APPROX(0.05)
assert result["fcf_pv_sum"] == _APPROX(expected["fcf_pv_sum"])
assert result["terminal_value_pv"] == _APPROX(expected["terminal_value_pv"])
assert result["enterprise_value"] == _APPROX(expected["enterprise_value"])
assert result["net_debt"] == expected["net_debt"]
assert result["equity_value"] == _APPROX(expected["equity_value"])
assert result["intrinsic_value_per_share"] == _APPROX(expected["intrinsic_value_per_share"])
def test_run_dcf_three_years_no_claims() -> None:
"""3-year projection with a clean capital structure."""
fcf = _fcf_series(100.0, 105.0)
expected = _expected_dcf(
base_fcf=105.0,
growth_rate=0.05,
wacc=0.10,
terminal_growth=0.03,
projection_years=3,
shares_outstanding=10.0,
)
result = _run_dcf(
fcf_series=fcf,
shares_outstanding=10.0,
wacc=0.10,
terminal_growth=0.03,
projection_years=3,
)
assert result["base_fcf"] == 105.0
assert result["fcf_pv_sum"] == _APPROX(expected["fcf_pv_sum"])
assert result["terminal_value_pv"] == _APPROX(expected["terminal_value_pv"])
assert result["enterprise_value"] == _APPROX(expected["enterprise_value"])
assert result["equity_value"] == _APPROX(expected["equity_value"])
assert result["intrinsic_value_per_share"] == _APPROX(expected["intrinsic_value_per_share"])
assert result["net_debt"] == 0.0
def test_run_dcf_five_years_default_horizon() -> None:
"""5-year projection matching the API default horizon."""
fcf = _fcf_series(100.0, 105.0)
expected = _expected_dcf(
base_fcf=105.0,
growth_rate=0.05,
wacc=0.10,
terminal_growth=0.03,
projection_years=5,
shares_outstanding=10.0,
)
result = _run_dcf(
fcf_series=fcf,
shares_outstanding=10.0,
wacc=0.10,
terminal_growth=0.03,
projection_years=5,
)
assert result["base_fcf"] == 105.0
assert result["fcf_pv_sum"] == _APPROX(expected["fcf_pv_sum"])
assert result["terminal_value_pv"] == _APPROX(expected["terminal_value_pv"])
assert result["enterprise_value"] == _APPROX(expected["enterprise_value"])
assert result["equity_value"] == _APPROX(expected["equity_value"])
assert result["intrinsic_value_per_share"] == _APPROX(expected["intrinsic_value_per_share"])
def test_run_dcf_zero_growth_flat_fcf() -> None:
"""Edge of the model: zero growth projects a flat FCF stream."""
fcf = _fcf_series(100.0, 100.0) # exact 0% growth
expected = _expected_dcf(
base_fcf=100.0,
growth_rate=0.0,
wacc=0.10,
terminal_growth=0.02,
projection_years=5,
shares_outstanding=10.0,
)
result = _run_dcf(
fcf_series=fcf,
shares_outstanding=10.0,
wacc=0.10,
terminal_growth=0.02,
projection_years=5,
)
assert result["growth_rate_used"] == _APPROX(0.0)
assert result["fcf_pv_sum"] == _APPROX(expected["fcf_pv_sum"])
assert result["terminal_value_pv"] == _APPROX(expected["terminal_value_pv"])
assert result["enterprise_value"] == _APPROX(expected["enterprise_value"])
assert result["intrinsic_value_per_share"] == _APPROX(expected["intrinsic_value_per_share"])
def test_run_dcf_uses_historical_growth_rate() -> None:
"""End-to-end check that the growth-rate estimator feeds the projection.
A series rising exactly 5% per year should produce the same 5-year result as
the hand-computed 5-year scenario (within float tolerance).
"""
fcf = _fcf_series(100.0, 105.0)
expected = _expected_dcf(
base_fcf=105.0,
growth_rate=0.05,
wacc=0.10,
terminal_growth=0.03,
projection_years=5,
shares_outstanding=10.0,
)
result = _run_dcf(
fcf_series=fcf,
shares_outstanding=10.0,
wacc=0.10,
terminal_growth=0.03,
projection_years=5,
)
assert result["growth_rate_used"] == _APPROX(0.05)
assert result["intrinsic_value_per_share"] == _APPROX(expected["intrinsic_value_per_share"])
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