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DCF (Discounted Cash Flow)

Discounted cash flow (DCF) is a valuation method that estimates the present value of an investment, project, or business by projecting its future cash flows and discounting them back to today's value using an appropriate discount rate — typically the weighted average cost of capital (WACC). DCF analysis is grounded in the principle that money received in the future is worth less than money received today, and it provides an intrinsic valuation independent of market sentiment or comparable transactions.

Why This Matters

DCF is the foundation of intrinsic valuation — it answers the question “what is this business or investment actually worth, based on what it will generate?” For mid-market CFOs, DCF analysis comes into play during acquisition decisions, investment appraisals, capital allocation, and conversations with investors or potential buyers. Understanding its mechanics and limitations is essential because the method is only as good as the assumptions that feed it. A polished DCF model built on weak projections produces a precise but misleading answer.

Where This Fits

This term sits within the Planning & Projections area of Performance & Control.

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