Overview

Discounted Cash Flow or DCF involves forecasting cash flows a business is expected to generate in the future and discounting these to present value terms at a cost of capital that represents the riskiness of underlying cash flows. The main steps involved in preparing a DCF are as follows:

  • Estimating and Forecasting free cash flows
  • Calculating cost of capital
  • Estimating Terminal value
  • Determining value and interpreting results