13.5. Discounted Cash Flow Approach
The discounted cash flow (DCF) approach includes the determination of future cash flow generated by the company for 5 or 10 years. This is then discounted with an appropriate discount rate and summed. The final value of the company is obtained by combining the actual value of this flow and the net financial position. The net financial position will be deducted if it is negative and added if it is positive.
There are two main steps of valuation: cash flow determination and the identification of the discount rate to be used. Results from DCF are verified with comparables to check if the results can be compared with similar companies.
DCF is used because the value of a company includes the future cash flow even ...
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