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- Valuation using discounted cash flows (DCF valuation) is a method of estimating the current value of a company based on projected future cash flows adjusted for the time value of money.The cash flows are made up of those within the “explicit” forecast period, together with a continuing or terminal value that represents the cash flow stream after the forecast period.In several contexts, DCF valuation is referred to as the "income approach". Discounted cash flow valuation was used in industry as early as the 1700s or 1800s; it was explicated by John Burr Williams in his The Theory of Investment Value in 1938; it was widely discussed in financial economics in the 1960s; and became widely used in U.S. courts in the 1980s and 1990s. This article details the mechanics of the valuation, via a worked example; it also discusses modifications typical for startups, private equity and venture capital, corporate finance "projects", and mergers and acquisitions, and for sector-specific valuations in financial services and mining.See Discounted cash flow for further discussion, and Valuation (finance) § Valuation overview for context. (en)
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