DCF

Valuing a company by its discounted future cash flows

What it is

A Discounted Cash Flow (DCF) values a company by projecting the cash it will generate in the future and "discounting" those amounts back to today's dollars, since money later is worth less than money now. Add up all those present values and you get an estimated intrinsic value. It is the most fundamentals-driven valuation method.

Why it matters

DCF forces you to state explicit assumptions about growth, margins, and risk rather than just copying market multiples. It is the analytical backbone of valuation, though it is very sensitive to its inputs.

Resources

Investopedia, Discounted Cash Flow

investopedia.com

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