DCF Valuation
Value a business on its future cash.
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---
name: DCF Valuation
description: Value a business on its future cash.
---
# Discounted Cash Flow (DCF) Valuation
A DCF values a business as the present value of its future free cash flows. It's theoretically sound and practically fragile — small changes in assumptions swing the answer wildly.
## Steps
1. **Project free cash flow.** Revenue × margin, minus capex and working capital changes, for an explicit forecast period (5-10 years).
2. **Terminal value.** Beyond the explicit period, assume steady-state: TV = FCF(t+1) / (WACC − g). The growth rate g must be < WACC and < long-run GDP, or the math blows up.
3. **Discount to present.** Each year's FCF discounted at WACC back to today.
4. **Sum.** PV of explicit FCFs + PV of terminal value = enterprise value. Subtract net debt for equity value.
## Honesty
- The output is dominated by terminal value and the discount rate. Two reasonable analysts get two very different answers. State your assumptions; show sensitivity tables.