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Going deeper · 5 min read

DCF basics: what a business is actually worth

A discounted cash flow model says a company is worth all the cash it will ever produce, adjusted for the fact that money later is worth less than money now.

Three inputs drive everything: how much cash it makes today, how fast that grows, and the discount rate you apply. Small changes in any of them swing the answer enormously.

That sensitivity is the lesson. Treat a DCF not as a price target but as a way of seeing which assumptions today's share price is quietly making.

Remember

A DCF's real output isn't a value — it's the assumptions you'd have to believe.

See a real example

Compare Apple, Nvidia and PepsiCo

Look at the cash each throws off, then at what it costs to buy.

What this shows

Steady, boring cash is priced modestly. Rapidly growing cash is priced for a future that has to show up.

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