mark gomes

Discounted Cash Flow (DCF) analysis is a financial valuation method used to determine the value of an investment or business based on its future cash flows, adjusted for the time value of money. The fundamental idea behind DCF is that a dollar received in the future is worth less than a dollar received today, so future cash flows must be "discounted" to reflect this difference.

Key Concepts of DCF:
Cash Flows: These are the expected future revenues or savings that an investment, project, or business will generate. For a business, cash flows often refer to free cash flow (FCF), which is the cash available after operating expenses and capital expenditures are accounted for.

Discount Rate: The rate used to discount future cash flows back to their present value. This rate typically reflects the required rate of return or the cost of capital (like the weighted average cost of capital, or WACC), which compensates for the risk of the investment and the time value of money.

Time Value of Money: This concept asserts that money today is worth more than the same amount of money in the future because of its earning potential (e.g., through interest, investment, or inflation).