Discounted Cash Flow (DCF)
Valuing an asset as the present value of its future cash flows.
What is Discounted Cash Flow (DCF)?
Project future cash flows, discount them at a required rate of return, and sum them. Theoretically the correct way to value anything, and practically very sensitive to the discount rate and terminal growth assumption.
Discounted Cash Flow (DCF): a worked example
Shifting the discount rate from 8% to 10% can cut a DCF valuation by a third.
More terms in Valuation & Analysis
Market Capitalization
Share price times shares outstanding - the equity value of a company.
Earnings Per Share (EPS)
Net income attributable to each share of common stock.
Price-to-Earnings (P/E) Ratio
Price per share divided by earnings per share.
Dividend Yield
Annual dividends per share divided by share price.
Payout Ratio
The share of earnings paid out as dividends.
Book Value
Assets minus liabilities - the accounting value of equity.
Free Cash Flow
Operating cash flow minus capital expenditures.
EBITDA
Earnings before interest, taxes, depreciation, and amortization.