Discounting is a financial calculation used to compare the present value of future cash flows. The discount factor is a multiplier that represents the present value of $1 received at a specified time in the future. For example, a discount factor of 0.85 means that $1 received in one year is worth $0.85 today.
Discounting is an important financial tool used in a variety of applications, including calculating the present value of future earnings, determining the fair value of bonds, and evaluating investment opportunities. One of the key historical developments in discounting was the introduction of the concept of the time value of money by economist Irving Fisher in the early 20th century.