Business glossary
Discounted cash flow (DCF)
A valuation method that converts expected future cash flows into a present value.
Example
At an assumed 10% annual discount rate, $1,100 expected one year from now has a present value of $1,100 ÷ 1.10 = $1,000. A multi-year calculation discounts each period separately.
How it differs from related terms
DCF measures a present value based on assumptions about future cash and a discount rate. It is not a record of cash already received. Specify the timing, forecast basis and terminal-value assumptions before interpreting the result.
Frequently asked questions
What is an example of discounted cash flow?
At an assumed 10% annual discount rate, $1,100 expected one year from now has a present value of $1,100 ÷ 1.10 = $1,000. A multi-year calculation discounts each period separately.
How should discounted cash flow be interpreted?
DCF measures a present value based on assumptions about future cash and a discount rate. It is not a record of cash already received. Specify the timing, forecast basis and terminal-value assumptions before interpreting the result.