Fundamental Glossary / Valuation Methods
Discounted Cash Flow Valuation
The use of discounted cash flow to estimate what a business, or its equity, is worth today.
Formula
Typically: present value of forecast free cash flow to the firm + present value of terminal value = enterprise value. Equity value = enterprise value - net debt. Per share = equity value / diluted shares.
What it means
DCF is the technique. A discounted cash flow valuation is that technique applied to a whole firm or to its equity, with an explicit forecast and a terminal value.
The firm-level route discounts FCFF at WACC. The equity route discounts FCFE at the cost of equity. Mixing the cash flow of one with the rate of the other is a common error.
How to read it
Compare the resulting value with the market price to see the gap. Then stress the margin, the growth, and the discount rate. If the conclusion only survives in the optimistic corner, it is not a margin of safety.
What to watch
A valuation is as good as its forecast of reinvestment. High growth with no capital spending and no working capital is a fantasy that DCF will obediently turn into a large number.
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.