Investing term
What is DCF (discounted cash flow)?
Estimate intrinsic value by adding up the present value of every future cash flow the business produces.
A DCF (discounted cash flow) values a business by estimating every future cash flow it will produce and discounting each back to today's dollars, since money later is worth less than money now. It's the most rigorous valuation method and also the most sensitive — small changes in growth or discount-rate assumptions swing the answer wildly, so it's best used for a range, not a single precise number.
For example
Projecting a company's cash for ten years and discounting it to the present might suggest it's worth $80 a share — a fair-value anchor to compare against the market price.
DCF (discounted cash flow) is taught hands-on in Stage 15 — Valuation for Investors.
See the lesson →