Definition
Discounted Cash Flow (DCF)
A way to estimate a company’s value from its future cash, in today’s dollars.
A Discounted Cash Flow model estimates what a business is worth by projecting the cash it will generate in the future and translating that back into today’s dollars — because a dollar received years from now is worth less than a dollar today. Market Lens projects free cash flow for 10 years (5 years of near-term growth, then a 5-year fade), discounts it at a CAPM cost of equity, adds a Gordon Growth terminal value (the value of all cash beyond the forecast), and weights fixed bear, base, and bull scenarios 25/50/25. The result is an estimate of intrinsic value you can compare against the current market price.
Related terms
- Intrinsic ValueAn estimate of what a business is actually worth, apart from its share price.
- Terminal ValueThe estimated value of all a company’s cash flows beyond the forecast period.
- Cost of Equity (CAPM)The return investors expect for owning a stock — used to discount future cash.
- Free Cash FlowThe cash a company has left after running and maintaining the business.
See it on a real stock
Market Lens puts Discounted Cash Flow (DCF) to work automatically in every report — free, no sign-up.