The Discounted Cashflow Model is the classic forward looking growth valuation method used by financial analysts.
DCF analysis tries to work out the value of a company today, based on projections of how much money it's going to make in the future. The use of the word "discounted" refers to the fact that cash in the future is worth less than cash today. As DCF is a mechanical valuation tool, this makes it subject to the principle of "garbage in, garbage out". In particular, small changes in inputs can result in large changes in the value of a company, given the need to project cash-flow to infinity. Nevertheless, it is very widely used as perhaps the primary valuation tool amongst the financial analyst community.
|Present Value of Cashflows||0.0||0.4||0.3||0.2||0.1||0.1||0.0||0.0||0.0|
|Sum of Present Value of Cashflows:||1.1|
|Perpetuity Value of Final Cashflow||0.1|
|Implied Share Price||p2.64|
|Discount/Premium to Current Price||-98.60%|