Course · Act V: Good Investment, Bad Investment · Chapter 24
Free cash flow and DCF valuation
Free cash flow and discounted cash flow (DCF) valuation, including terminal value: estimating what a business is worth from the cash it will produce.
Key terms
- Free cash flow
- Operating cash flow − capex. Cash owners could take out.
- DCF
- Discounted cash flow: value = present value of all future free cash flows.
- Terminal value
- Value of cash flows beyond the forecast: next cash flow ÷ (r − g).
“Free Cash Flow & DCF” is part of the full course: 5 puzzles on free cash flow and dcf valuation, with a story that carries through all five acts. Try this act’s free chapter, “Time Value of Money”, first.