Discount cash flow (DCF) is a financial valuation method that analyzes future cash flows by using a discount rate to determine the present value of all future cash flows. In simple terms, it involves determining the current worth of an investment based on its projected future cash flow.
DCF is essential for making informed investment decisions. It helps investors assess the potential profitability of an investment by considering the time value of money and estimating the intrinsic value of an asset. A key historical development in DCF was the invention of the compound interest formula by Leonhard Euler in the 18th century.