What is the meaning / definition of Discounted Cash Flow in the industry?

stands for: Discounted Cash Flow

The term Discounted Cash Flow refers to a method utilized when establishing the future value of an investment, based on the cash flow it is forecasted to generate in the future. The Discounted Cash Flow Analysis is thereby able to highlight the present value (PV) of the cash generated by an investment in the future.

Companies most suitable to the analysis are those in industries such as utilities, oil and gas or banking, and industries where income, expenditures and growth tend to be relatively stable and steady over time.

How to perform a discounted cash flow analysis?

Formula: DCF = (CF / (1 + r) ^1) + (CF / (1 + r) ^2) + (CF / (1 + r) ^3)+ ….+ (CF / (1 + r) ^n)

CF = Cash Flow

r =

n = number of periods

The goal of DCF is to determinate the amount of income you will receive with an investment.

See Also:

  • IRR – Internal Rate of Return
  • NPV – Net Present Value


Comments are closed