Discounted Cash Flow (DCF)
What is discounted cash flow?
Discounted cash flow (DCF) is a financial analysis method used to calculate the value of a company, project or assets using the principles of the time value of money.
Where have you heard about discounted cash flow?
DCF has been used ever since interest was added to a loan in ancient times. Similar methods to the ones that we use now were being used by the ancient Egyptians and Babylonians to analyse the discounting of future cash flows.
What you need to know about discounted cash flow.
After the stock market crash of 1929, discounted cash flow became popular as a valuation for stocks. All foreseeable cash flows are estimated and discounted by using the amount of capital to give their present values. The total of these cash flows, incoming and outgoing included, is the net present value (NVP), which is taken as the total value of the cash flow in question. This method is broadly used in corporate financial management, real estate development, patent valuation and investment finance.
Find out more about discounted cash flow.
If you are interested in discounted cash flow, look at our page on the time value of money.