Discounted Cash Flow (DCF)

DCF is the fundamental valuation method: it estimates a company's intrinsic value by projecting future free cash flows and discounting them to present value using WACC (the cost of capital). The process: (1) project FCF for 5-10 years explicitly, (2) estimate terminal value for all cash flows beyond the forecast (typically 60-80% of total value), (3) discount both back to today. For example, if you project $100M FCF growing to $150M over 5 years, then $3B terminal value, discounted at 10% WACC, you get enterprise value. Sensitivity is extreme: a 1% change in WACC or terminal growth can swing value 20-30%. Always run sensitivity tables. DCF reflects your view of the business, not the market's current mood.