Discounted Cash Flow is a method of estimating what an asset is worth today by using projected cash flows.
It tells you how much money you can spend on the investment right now to get the desired return in the future.
Discount Cash Flow analysis or DCF analysis as it is called is a method that is used to assess the present value of a company or its assets.
The valuation is based on the number of cash flows (read money) it can generate in the future.
The discounted cash flow method is used by professional investors and analysts at investment banks to determine how much to pay for a business, whether it’s for shares of stock or for buying a whole company.
And it’s also used by financial analysts and project managers in major companies to determine whether a given project will be a good investment, like for a new product launch or a new manufacturing facility.