DCF models

(noun)

Valuation using discounted cash flows is a method for determining the current value of a company using future cash flows adjusted for time value. The future cash flow set is made up of the cash flows within the determined forecast period and a continuing value that represents the cash flow stream after the forecast period.

Related Terms

Examples of DCF models in the following topics:

  • Valuing Nonconstant Growth Dividends

    • Limited high-growth approximation, implied growth models, and the imputed growth acceleration ratio are used to value nonconstant growth dividends.
    • While these DCF models are commonly used, the uncertainty in these values is hardly ever discussed.
    • Note that the models diverge for and hence are extremely sensitive to the difference of dividend growth to discount factor.
    • One can use the Gordon model or the limited high-growth period approximation model to impute an implied growth estimate.

  • Understanding Future Stock Value

    • The soundest stock valuation method, the discounted cash flow (DCF) method of income valuation, involves discounting the profits (dividends, earnings, or cash flows) the stock will bring to stockholders in the foreseeable future, and calculating a final value on disposal.
    • The discounted rate normally includes a risk premium which is often based on the capital asset pricing model.

  • Defining Capital Budgeting

    • Net present value (NPV) is used to estimate each potential project's value by using a discounted cash flow (DCF) valuation.
    • Managers may use models, such as the CAPM or the APT, to estimate a discount rate appropriate for each particular project, and use the weighted average cost of capital(WACC) to reflect the financing mix selected.

  • Working Capital

    • It is a derivation of working capital, that is commonly used in valuation techniques such as discounted cash flows (DCFs).

  • Calculating Expected Value

    • It is a derivation of working capital that is commonly used in valuation techniques, such as DCFs (Discounted Cash Flows).

  • Discounted Cash Flow Approach

  • Discounted Payback

  • Ranking Investment Proposals

    • NPV is a central tool in discounted cash flow (DCF) analysis and is a standard method for using the time value of money to appraise long-term projects.

  • Risk Adjusting the Discount Rate

    • In this situation, a higher degree of uncertainty (and thus risk) is built into each expected cash flow (called a discounted cash flow, or DCF).

  • Fama-French Three-Factor Model

    • The Fama–French three-factor model is a linear model designed by Eugene Fama and Kenneth French to describe stock returns.
    • The Fama–French three-factor model is a model designed by Eugene Fama and Kenneth French to describe stock returns .
    • Like CAPM and the Arbitrage Pricing Theory, the Fama-French three-factor model is a linear model that relates structural factors to the expected return of an asset.
    • Unlike those two models, however, the Fama-French model has three specific and defined factors.
    • Though it is more complex than CAPM, the Fama-French model has been shown to be a better at explaining the returns of a diversified portfolio: CAPM explains 70% of returns on average, while the Fama-French model explains 90% on average.