Discounted cash flow
(DCF).
A process of discounting cash flows that are expected in the future to make them comparable in value with cash flows received today.
This 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, The Treasurer, October 2012
