DCF (Discounted Cash Flow)

The discounted cash flow method values a company based on its discounted future free cash flows. The core elements are the detailed planning of operating cash flows, an appropriate discount rate (typically the WACC) and a terminal value for the period beyond the detailed planning horizon.

DCF provides a theoretically sound value indication but is highly dependent on planning assumptions and discount rates. In practice, DCF is regularly combined with multiple-based valuations to derive a robust valuation range; see also our article on methods of company valuation.