Discounted cash flow is a financial valuation method based on the concept of the time value of money.

Discounted cash flow is a financial valuation method based on the concept of the time value of money. Its basic idea is this: in industries involving cash flows, such as investing, deposits, or corporate development, future cash flows are discounted to their present value using a specific formula.

This helps evaluate a company’s future growth trend, or estimate the likelihood and potential extent of future gains from a current investment. It is highly favored by value investors.

In practice, the evaluator must have a fairly accurate understanding of the business and then determine an appropriate discount rate to calculate a more accurate discounted cash flow value. So how exactly is discounted cash flow calculated? How is it used? After reading this article, you will learn: