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Discounted Cash Flow

DCF

Valuing a business as the present value of the cash it will generate in future.

Detailed explanation

Forecast free cash flows for several years, estimate a terminal value, and discount everything back at the cost of capital (WACC). The total is enterprise value.

Formula

EV = Σ FCFₜ ÷ (1 + WACC)ᵗ + Terminal value ÷ (1 + WACC)ⁿ

Example

FCF ₹100 cr next year at 12% WACC is worth ₹100 ÷ 1.12 = ₹89.3 cr today.

Why it matters

It is the intrinsic-value method every analyst is expected to know.

Key points

Very sensitive to WACC and terminal growth.
Use with relative valuation as a cross-check.
Gives enterprise value, not equity value.

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Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.