D

Glossary · PSX term

Discounted cash flow (DCF).

DCF values a company by estimating its future cash flows and discounting them to today's value.

Definition

It projects free cash flows over several years, applies a discount rate for time and risk, and adds a terminal value to estimate intrinsic worth. The result is highly sensitive to growth and discount-rate assumptions.

Worked example

A DCF might value a company by projecting its free cash flows for ten years and discounting them to the present.

Related on PSX Clarity

Intrinsic value

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