Understanding the discounted cash flow (DCF) method
A , for short, sounds like it should hand you a precise answer: plug in some numbers, and out comes what a company is worth. It does produce a number. What it does not do is predict the future. A is a structured way of writing down your assumptions about a company's future cash flows so that you, and anyone else looking at your work, can see exactly what you believe and question it. It is not a device for discovering a hidden true value that was sitting there all along, it is a discipline serious investors use to turn a hunch about a company into something they can test, defend, and revisit as new information comes in.
Cash over accounting profit
A is built on , not . That choice is deliberate. is an accounting figure, shaped by schedules, , and a long list of other that can make a company look more or less profitable than the cash moving through the business. strips most of that away: it is the cash a company generates after paying for the needed to keep the business running and growing, the cash that could be paid out to or reinvested without an accountant's judgment sitting in the middle of the number.