Discounted Cash Flow

Discounted Cash Flow (DCF) is a financial method used to estimate the value of an investment or business today, based on its expected future cash flows. Since money received in the future is worth less than money today due to inflation and opportunity cost, DCF adjusts those future cash flows to their present value using a discount rate. Essentially, it helps determine whether an investment is worthwhile by comparing the current cost to the total value of its projected future earnings, making it a useful tool for evaluating the potential profitability of assets or projects.