DCF (discounted cash flow)
cash flow/discount cash flow/discount cash income and outgo method

It is the present worth where enterprise (business, project and property) it estimated the free cash flow which is produced over future it divided that flow line due to fixed ratio (WACC) and pulled and calculated. It is used the occasion where value appraisal of the investment result such as enterprise value and project investment is done.

Those where enterprise and the investor invest expecting the result = return of investment, are thing, but after usually, the investment result doing investment, it occurs via after, or fixed period the fixed period. When it tries to examine the profit of investment, rather than comparing the present investment amount and the future result amount, converting the future amount to present worth, the one which it compares is rational.

At the time of such, the value which in the future occurs those where it divided free cash flow into the base and pulled and corrected in present worth are DCF. The fact that is meant cash which extent in the future DCF is large enterprise acquires is many. By the fact that it makes DCF, the future value which fluctuates with collection time and the like becomes comparison possible. The case where plural investment matters are compared quantitatively,calculatingNPVand IRR, etc. it makes index.

Dividing future free cash flow at capital cost, it calculates the calculation of present worth. The fact that is meant extent in the future discount present worth is large, the profit (cash) which is acquired is many. Generally, when it reaches the present worth > capital cost which was calculated, it is judged that it should invest.
Present worth = (future cash flow ÷ (1 + capital cost) ^ the number of years)
(^ Power which should)

For example when there is an investment matter where 100 ten thousand Yen are estimated as a return of 10 years later, the investment is 40 ten thousand Yen, later which presently is before the eye 100 ten thousand Yen of 40 ten thousand Yen and 10 years are compared. When discount rate was supposed 10%, when it reaches 100 ten thousand Yen ÷ (1+0.1) 10 power = 38 ten thousand 5543 Yen, 40 ten thousand Yen of foresight value are higher than future 100 ten thousand Yen, it can calculate.

Besides the fact that it is suitable for the judgement, it utilizes free cash flow in some kind of investment, the case of enterprise M&A it is widely used in transaction price computation, property decision ahead financing the bank and computation, stock of the claim mortgage and price appraisal etc. of real estate. Recently, it has reached the point where it is utilized even with IT investment decision.

When the appraisal with DFC method is done, depending upon it estimates cash flow how, it sets discount rate to which, the result differs. Especially depending upon how you appraise & compute the investment effect itself which, becomes postulate at the time of IT investing the result is largely influenced it means that.