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Economics

Discounted Cash Flow (DCF)

Quick fact

A DCF analysis can reveal that a company trading at a high stock price may actually be undervalued if its future cash flows are expected to grow rapidly—and vice versa.

Why this is interesting

Imagine you're offered $100 today or $100 a year from now. Most would take the money today—because money has time value. Discounted cash flow (DCF) is the method that quantifies that intuition.