How do you read Discounted cash flow (DCF)?

The result is only as good as the assumptions: small changes in growth or in the rate move the value a lot. That is why it reads better as a range of scenarios than as one number.

Discounted cash flow (DCF)

Valuation

A method that works out what the cash a company will produce in the future is worth today.

How it is worked out

Estimate the free cash flow of the coming years, bring each back to today's value with a discount rate, add a terminal value, and divide by the number of shares.

How to read it

The result is only as good as the assumptions: small changes in growth or in the rate move the value a lot.
That is why it reads better as a range of scenarios than as one number.

Example

$100m a year forever at an 8% rate: a value of about $1.25bn (100 divided by 0.08).

Related terms

The other pages on US stocks, free to read. On the company pages, the last three fiscal years are open to everyone, five with a free account, and every year with Ploutos Investor.

US stocksThe market today, the sectors, the largest companies and the week's results.The market's sectorsThe 11 sectors side by side: returns, share of the market, median P/E and dividend.Compare stocksTwo companies side by side: price over up to ten years, with and without dividends, and every figure.US dividend stocksEach dividend's yield next to whether the company's cash covers it and whether it was ever cut.

Explanations of terms for learning, with examples from SEC filings.