FactorSage

Intrinsic Value · Lesson 1.2

DCF valuation

A discounted cash flow (DCF) valuation estimates what a business is worth today by projecting its future cash flows and discounting them back to the present.

The core idea

A dollar received in five years is worth less than a dollar today because of opportunity cost and risk. A DCF estimates future free cash flows, discounts each one back to the present at a required rate of return, and sums the results.

Value = Σ FCFt / (1 + r)^t + Terminal Value / (1 + r)^N
Sum of discounted free cash flows plus a discounted terminal value.

The three inputs that matter most

  1. Free cash flow — the cash left after the business funds its operations and capex.
  2. Discount rate — the return you require given the risk of the cash flows.
  3. Growth and terminal value — how cash flow evolves and what the business is worth at the end of the forecast.

DCF in FactorSage

FactorSage exposes DCF_VALUE (annual) and DCF_VALUE_TTM (Pro) as intrinsic value fields. You can compare DCF directly to price using the MARGIN_OF_SAFETY field, or include DCF alongside other models in a combined intrinsic value with AVG, MIN, MAX, or WEIGHTED_AVG.

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