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Finance Glossary

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Discount Cash Flow

Definition:

A dollar today is worth more than a dollar tomorrow. Money in the future carries a discounted value from what money is worth today. How much it is discounted is called the discount rate and DCF in particular refers to the way many companies are valued on Wall Street. That is, when you buy shares of Facebook at the IPO, there isn't enough cash flow today to justify a very high valuation. But the expectation is that in the future the company will generate gobs of cash - there is risk that the company won't generate the cash and then it'll come in the future so you have to discount back the value of those streams of cashola.