Discounted Cash Flow (DCF) Valuation

Overview

DCF estimates a company's intrinsic value by projecting future free cash flows and discounting them to present value using WACC. It answers "what is this business worth based on its future cash generation ability?"

When to Use

Trigger conditions:

• User needs to value a company or business unit
• User evaluating M&A targets or investment opportunities
• User asks "what's the fair price?" or "build a valuation model"

When NOT to use:

• For early-stage startups with no revenue → use comparables or venture method
• For quick relative valuation → use multiples (P/E, EV/EBITDA)
• For portfolio-level decisions → use BCG Matrix

Framework