Fundamental Glossary / Valuation Methods
Discounted Cash Flow (DCF)
The technique of valuing a stream of future cash by discounting each cash flow back to today at a rate that reflects time and risk.
Formula
Present value = sum of cash flow in year t / (1 + discount rate) ^ t.
What it means
A rupee later is worth less than a rupee now, and a risky rupee is worth less than a safe one. DCF writes that down as arithmetic.
The technique is general. It can value a project, a bond, or a firm. The inputs are the cash flows and the discount rate. Everything else is preparation of those inputs.
How to read it
Use DCF when the cash flows can be forecast with a straight face. A stable business with a known reinvestment need is a better candidate than a company whose product does not yet exist.
What to watch
Small changes in the discount rate or the terminal growth rate move the answer a lot, because most of the value often sits in the terminal value. Show a range, not a single rupee.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.