Legal Definitions - DCF

DCF stands for discounted cash flow. It is a method used to evaluate a capital investment by comparing its projected income and costs with its current value. This method is used to determine the value of a company by calculating the present value of its future cash flows. In theory, the value of the corporation's assets equals the present value of the expected cash flow generated by those assets.

• If a company is considering investing in a new project, they can use DCF to determine if the investment is worth it. They would calculate the present value of the expected cash flows from the project and compare it to the cost of the investment.
• A real estate investor can use DCF to determine the value of a property by calculating the present value of the expected rental income from the property.

These examples illustrate how DCF can be used to evaluate the potential profitability of an investment by comparing the expected cash flows to the cost of the investment. It helps investors make informed decisions about whether or not to invest in a particular project or asset.