# Discounted cash flow

*Investment appraisal.*

(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

- Cost of capital
- Discount rate
- Discounting
- Dividend growth model
- Dividend valuation model
- Growing perpetuity factor
- Incremental cash flows
- Internal rate of return
- Investment appraisal
- Net present value
- Perpetuity
- Perpetuity factor
- Present value
- Payback
- Project appraisal
- Time value of money

### Other links

Masterclass: Discounted cash flow, *Will Spinney*, The Treasurer