Discounted Cash Flow Analysis
Definition
A valuation methodology that estimates the present value of a company by projecting its future free cash flows over a defined forecast period and discounting those cash flows to the present at a rate that reflects the time value of money and the risk of the projected cash flows. Discounted cash flow analysis values a company based on its own projected performance, not by reference to comparable companies or transactions.
Common Misapplication
The most common misapplication is applying a terminal growth rate that exceeds the long-term economic growth rate of the primary market, which produces a terminal value that implies the company will eventually be larger than the economy. A terminal growth rate above five percent in any market requires explicit documented justification.
FFI Standard Reference
This term is defined and applied in Book 4, Section 4.2: Discounted Cash Flow Analysis.
Related Terms
Citable URL
This term may be cited using the following permanent URL.
Full citation format: Founder Financial Infrastructure Standard, Beta v0.5, Glossary: Discounted Cash Flow Analysis. https://ffistandard.org/glossary/discounted-cash-flow-analysis/. 2026.