Types

The former type is referred to as absolute valuation and the latter one is called relative valuation
technique. Between the aforementioned two techniques application of the former one quite difficult
as it is difficult to forecast the income/cash flow that the investment would generate in the future
with certainty. But compared to that technique the relative valuation is easier as it uses financial data
that are very much certain. Besides, application of the technique is much easier compared to the
absolute valuation technique.

Types

The former type is referred to as absolute valuation and the latter one is called relative valuation
technique. Between the aforementioned two techniques application of the former one quite difficult
as it is difficult to forecast the income/cash flow that the investment would generate in the future
with certainty. But compared to that technique the relative valuation is easier as it uses financial data
that are very much certain. Besides, application of the technique is much easier compared to the
absolute valua Types

The former type is referred to as absolute valuation and the latter one is called relative valuation
technique. Between the aforementioned two techniques application of the former one quite difficult
as it is difficult to forecast the income/cash flow that the investment would generate in the future
with certainty. But compared to that technique the relative valuation is easier as it uses financial data
that are very much certain. Besides, application of the technique is much easier compared to the
absolute valuation technique.

DCF

The Discounted Cash Flow (DCF) method is a cornerstone of absolute valuation, meticulously
estimating a company's intrinsic value by considering its future cash flow potential. It essentially asks
the question: what is the present value of all the cash a company is expected to generate in the
future?

Mechanics of DCF:

Projecting Future Cash Flows: This is the heart of DCF. You'll need to forecast the company's future
cash flows for a specific period, considering factors like revenue growth, operating expenses, capital
expenditures, and potential changes in dividends.

Discount Rate: A crucial step is selecting the appropriate discount rate. This rate reflects the time
value of money and the inherent risk associated with the investment. A higher risk company would
require a higher discount rate, as future cash flows are less certain.

Types
The former type is referred to as absolute valuation and the latter one is called relative valuation
technique. Between the aforementioned two techniques application of the former one quite difficult
as it is difficult to forecast the income/cash flow that the investment would generate in the future
with certainty. But compared to that technique the relative valuation is easier as it uses financial data
that are very much certain. Besides, application of the technique is much easier compared to the
absolute valuation technique.

DCF

The Discounted Cash Flow (DCF) method is a cornerstone of absolute valuation, meticulously
estimating a company's intrinsic value by considering its future cash flow potential. It essentially asks
the question: what is the present value of all the cash a company is expected to generate in the
future?

Mechanics of DCF:

Projecting Future Cash Flows: This is the heart of DCF. You'll need to forecast the company's future
cash flows for a specific period, considering factors like revenue growth, operating expenses, capital
expenditures, and potential changes in dividends.

Discount Rate: A crucial step is selecting the appropriate discount rate. This rate reflects the time
value of money and the inherent risk associated with the investment. A higher risk company would
require a higher discount rate, as future cash flows are less certain.

Types

The former type is referred to as absolute valuation and the latter one is called relative valuation
technique. Between the aforementioned two techniques application of the former one quite difficult
as it is difficult to forecast the income/cash flow that the investment would generate in the future
with certainty. But compared to that technique the relative valuation is easier as it uses financial data
that are very much certain. Besides, application of the technique is much easier compared to the
absolute valuation technique.

DCF

The Discounted Cash Flow (DCF) method is a cornerstone of absolute valuation, meticulously
estimating a company's intrinsic value by considering its future cash flow potential. It essentially asks
the question: what is the present value of all the cash a company is expected to generate in the
future?
Mechanics of DCF:

Projecting Future Cash Flows: This is the heart of DCF. You'll need to forecast the company's future

Benefits of DCF:

Focus on Future Potential: DCF goes beyond just looking at historical financials. It considers a
company's growth prospects and future cash flow generation capability.

Discounting Cash Flows: Each projected cash flow is then discounted back to its present value using
the chosen discount rate. The present value considers the concept of "time value of money" – a
dollar today is worth more than a dollar tomorrow.

Intrinsic Value: By summing the present values of all the projected cash flows, you arrive at the
company's estimated intrinsic value.

Benefits of DCF:

Focus on Future Potential: DCF goes beyond just looking at historical financials. It considers a
company's growth prospects and future cash flow generation capability.

tion technique.

DCF

The Discounted Cash Flow (DCF) method is a cornerstone of absolute valuation, meticulously
estimating a company's intrinsic value by considering its future cash flow potential. It essentially asks
the question: what is the present value of all the cash a company is expected to generate in the
future?

Mechanics of DCF:

Projecting Future Cash Flows: This is the heart of DCF. You'll need to forecast the company's future
cash flows for a specific period, considering factors like revenue growth, operating expenses, capital
expenditures, and potential changes in dividends.
Discount Rate: A crucial step is selecting the appropriate discount rate. This rate reflects the time
value of money and the inherent risk associated with the investment. A higher risk company would
require a higher discount rate, as future cash flows are less certain.

Discounting Cash Flows: Each projected cash flow is then discounted back to its present value using
the chosen discount rate. The present value considers the concept of "time value of money" – a
dollar today is worth more than a dollar tomorrow.

Intrinsic Value: By summing the present values of all the projected cash flows, you arrive at the
company's estimated intrinsic value.

Benefits of DCF:

Focus on Future Potential: DCF goes beyond just looking at historical financials. It considers a
company's growth prospects and future cash flow generation capability.

DCF

The Discounted Cash Flow (DCF) method is a cornerstone of absolute valuation, meticulously
estimating a company's intrinsic value by considering its future cash flow potential. It essentially asks
the question: what is the present value of all the cash a company is expected to generate in the
future?

Focus on Future Potential: DCF goes beyond just looking at historical financials. It considers a
company's growth prospects and future cash flow generation capability.