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Discounted Cash Flow (DCF)
Valuation & Fundamentals
A valuation method that estimates a company's future free cash flows and discounts them back to today at a chosen rate, then adds them up.
The core idea is that a dollar today is worth more than a dollar several years from now. A terminal value is added for the years beyond the forecast period. The result is very sensitive to the growth and discount rate assumptions: a small change in an assumption can move the value a great deal.
Example
$110 received one year from now is worth $100 today at a 10% discount rate (110 / 1.10).
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