Question 1

What is a DCF (discounted cash flow) valuation?

Accepted Answer

A DCF valuation estimates what a company is worth today by projecting its future free cash flows and discounting them back to present value using a required rate of return. If the resulting intrinsic value is above the current share price, the stock may be undervalued.

Question 2

What discount rate should I use in a DCF?

Accepted Answer

Most analysts use the company's weighted average cost of capital (WACC), typically 8-12% for large, stable companies and higher for riskier ones. A higher discount rate produces a more conservative valuation.

Question 3

Why do DCF results vary so much?

Accepted Answer

Small changes in growth or discount-rate assumptions compound over many projected years, so intrinsic value is highly sensitive to inputs. Treat any single DCF number as an estimate and test bear, base, and bull scenarios.

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