Definition
DCF analysis projects a company's future free cash flows and discounts them back to present value using the weighted average cost of capital (WACC). It then adds terminal value for cash flows beyond the projection period. DCF is considered the gold standard of intrinsic valuation.
Formula
DCF Value = Σ(FCF_t / (1+WACC)^t) + Terminal Value / (1+WACC)^n
Example
Project FCF for 5 years ($100M, $110M, $120M, $130M, $140M), discount at 10% WACC, add terminal value assuming 3% perpetual growth. Sum equals intrinsic value.
FAQ
What is DCF Valuation (Discounted Cash Flow)?
A valuation method that discounts projected future cash flows to present value.
How do you calculate DCF Valuation (Discounted Cash Flow)?
A common formula for DCF Valuation (Discounted Cash Flow) is: DCF Value = Σ(FCF_t / (1+WACC)^t) + Terminal Value / (1+WACC)^n
Why is DCF Valuation (Discounted Cash Flow) important?
DCF Valuation (Discounted Cash Flow) helps investors evaluate valuation and make more informed decisions.