The method consists of projecting free cash flows for the explicit forecast period, calculating the terminal value and discounting them at a rate such as the weighted average cost of capital. Because the result is highly sensitive to assumptions (growth, margins, discount rate), sensitivity analysis is essential.
Related terms
Weighted average cost of capital (WACC)The average of the costs of a company's equity and debt financing, weighted by their share of the capital structure.Terminal valueIn a discounted cash flow model, the value expressing in a single amount all cash flows after the explicit forecast period.Sensitivity analysisMeasuring the effect of changes in key assumptions on the outcome.ValuationEstimating the monetary value of a company, share, asset or liability at a specific date and for a specific purpose.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Cost of capitalThe minimum rate of return investors expect from an investment in return for the risk they take.
Last updated: October 22, 2026 · This definition is for general information only.