DCF analysis is an intrinsic valuation methodology that calculates a firm’s current value by discounting its projected future free cash flows back to the present day using an appropriate risk-adjusted rate.

Core Mechanics

• Projection Period: Forecasting detailed financial statements out 5 to 10 years until the company reaches a stable, mature state.
• Terminal Value: Calculating the remaining value of the firm beyond the explicit projection period, assuming either stable perpetual growth or an exit valuation multiple.
• Discounting Engine: Applying the Weighted Average Cost of Capital (WACC) to discount Free Cash Flow to the Firm (FCFF) to arrive at Enterprise Value
• Sensitivity Analysis: Testing the valuation output against variations in the terminal growth rate and WACC to construct a range of potential values