Understanding the discounted cash flow (DCF) method
A discounted cash flow, DCF for short, sounds like it should hand you a precise answer: plug in some numbers, and out comes what a company is actually worth. It does produce a number. What it does not do is predict the future. A DCF 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 actually test, defend, and revisit as new information comes in.
Cash over accounting profit
A DCF is built on free cash flow, not net income. That choice is deliberate. Net income is an accounting figure, shaped by depreciation schedules, stock based compensation, and a long list of other non-cash adjustments that can make a company look more or less profitable than the cash actually moving through the business. Free cash flow strips most of that away: it is the cash a company generates after paying for the capital expenditure needed to keep the business running and growing, the cash that could genuinely be paid out to shareholders or reinvested without an accountant's judgment sitting in the middle of the number.