Discounted cash flow
Also called: DCF, DCF valuation, discounted cash flow model
A valuation method that estimates a business's worth as the present value of the free cash flow it will generate.
A DCF forecasts free cash flow for several years, discounts it, adds a terminal value for the years beyond, subtracts net debt and divides by the number of shares. The terminal value is usually most of the result, so the output is best shown as a range.
Learn more in these lessons
- Discounted cash flow valuationHow do you build a discounted cash flow valuation?
- Terminal valueWhat is terminal value, and why does it matter so much in a DCF?
- Reverse DCFHow can you tell what growth a share price is already assuming?
- Choosing a valuation methodWhich valuation method suits which kind of company?
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