The Business Case Dictionary

Discounted cash flow (DCF) Analysis

Discounted cash flow (DCF) analysis is a method used in business cases to determine the present value of a business opportunity or investment opportunity. It is based on the idea that the value of an investment is the sum of all of its expected future cash flows, discounted back to the present.

The discounted cash flow approach is based on the premise that the value of money today is worth more than the same amount of money in the future.

To perform a discounted cash flow analysis, you need to make assumptions about the future cash flows that the business case investment will generate, as well as the appropriate discount rate to use. The discount rate is used to adjust for the time value of money, as well as the risk associated with the investment.

Once you have estimated the expected future cash flows and the appropriate discount rate, you can use the Business Case Financial Templates or spreadsheet to determine the present value of the cash flows. The present value represents the current worth of the investment, taking into account the time value of money and the risk of the investment.

DCF analysis is commonly used to evaluate the potential return on investment for a business case opportunity, and to compare different investment opportunities, options and scenarios. It is a widely used method for evaluating business cases.