Discounted cash flow

Discounted cash flow (DCF)

Future cash flows multiplied by discount factors to obtain present values.

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discounted cash flow

A method of estimating an investment's current value based on the discounting of projected future revenues and costs. The answer derived from the technique is only as accurate as the estimates used, which, in many cases, are far from certain.

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Discounted cash flow. Discounted cash flow (DCF) is the present value of a company's future cash flows. DCF is calculated by dividing projected annual earnings over an extended period by an appropriate discount rate, which is the weighted cost of raising capital by issuing debt or equity.

The discount rate is lower for stable, well-established companies than for those considered at potential risk.

Some analysts use only projected dividend income in calculating future cash flow. Others include projected earnings that would be available for stock buybacks.