Glossary

Discounted cash flow (DCF)

A DCF estimates what a business is worth today by projecting its future free cash flows and discounting them back to the present.

Discounted cash flow valuation projects a company’s future free cash flows, then discounts them to today using a rate that reflects time and risk. The sum is an estimate of intrinsic value.

A DCF is only as good as its assumptions: growth rate, margins, and discount rate. Small changes swing the output a lot, so it is best read as a range and a set of assumptions, not a single precise number.

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