Discounted cash flow

(DCF).

Discounted cash flow is a process of discounting cash flows that are expected in the future, to make them comparable in value with each other and with cash flows received today.

The DCF process is widely used in investment appraisal, where the rate used to discount with is a measure of the appropriately risk-adjusted cost of capital.

Where the sum of discounted future positive cash flows (inflows) is calculated, this is often referred to as the total Present value of those cash flows.

Where the present value of future expected cash flows is netted against discounted investment outflows, this is referred to as the Net present value of the investment proposal.

Discounted cash flow techniques include Net Present Value (NPV) analysis and Internal Rate of Return (IRR) analysis.

See also

• Discount rate
• Incremental cash flows
• Internal rate of return
• Investment appraisal
• Net present value
• Present value
• Time value of money

Other links

Masterclass: Discounted cash flow, Will Spinney, The Treasurer