A valuation method that estimates present value from expected future cash flows and a chosen discount rate.
How it works
A DCF forecasts cash flows and discounts them to present value using a rate intended to reflect time and risk. Explicit forecast value is commonly combined with a terminal value.
Example
A cash flow expected next year is worth less today when discounted; raising the discount rate lowers its present value.
Limitations
Small changes in growth, margins, discount rate, or terminal assumptions can materially alter the result. A DCF is a scenario model, not an observed market price.
Evidence LedgerHow this insight was built
Human reviewedThesis being tested
This definition explains Discounted Cash Flow (DCF) accurately, with its practical use and material limitations.
Key assumptions
- The named calculation or convention is stated where definitions vary.
- The example is illustrative and not a forecast or recommendation.
What could invalidate the view
- A different market, instrument, jurisdiction, or methodology may use the term differently.
- The cited authority may revise its guidance or terminology.
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- Market Master · reviewed
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