What is Discounted Cash Flow Model?

The discounted cash flow (DCF) model is a valuation tactic that helps investors determine the present value of an investment by estimating how much money it will make in the future. DCF analysis projects future cash flows by using a series of assumptions about how the company or asset will perform in the future, and then forecasting how this performance translates into the cash flow generated. The future cash flows are discounted back in a net present value (NPV) calculation, which represents the amount an investor should be willing to pay today for receiving an asset's cash flows in the future.