[PDF] DISCOUNTED CASH-FLOW

What is Discounted Cash Flow?

Discounted cash flow, or DCF, is a common method of valuing investments that produce cash flows.
It is also a common valuation methodology used in analyzing investments in companies or securities.
The approach attempts to place a present value on expected future cash flows with the assistance of a “discount rate”.

Is DCF the same as NPV?

The main difference between discounted cash flow vs. net present value is that net present value subtracts upfront year 0 costs (in actual dollars estimated) from the sum of the present value of the cash flows.
The discounted cash flow method doesn't subtract these initial costs that include capital expenditures.

How do you perform a DCF?

The following steps are required to arrive at a DCF valuation:

How do you perform a DCF?

It is routinely used by people buying a business.
It is based on cash flow because future flow of cash from the business will be added up.
It is called discounted cash flow because in commercial thinking $100 in your pocket now is worth more than $100 in your pocket a year from now.