Corporate FinanceFinancial Glossary
DCF (Discounted Cash Flow)
Definition
A valuation method that estimates the present value of an investment based on its expected future cash flows, discounted by an appropriate rate (usually WACC). The formula sums up each period's cash flow divided by (1 + discount rate) raised to the power of that period number.
Why It Matters
DCF is the gold standard for intrinsic valuation in investment banking, equity research, and corporate finance. It forces you to make explicit assumptions about growth, profitability, and risk — exposing the real drivers of a company's value rather than relying on market sentiment.