Valuation by discounting of cash flows: Formula and method

We recently reviewed in this blog the main valuation methods for use in fundamental analysis. Understanding valuation by discounted cash flows is essential, since all other valuation methods start from this one. In this article we will see when to use discounted cash flows, its formula and the steps to follow to use this valuation method.

When to use discounted cash flows?

First of all, we are going to define the moments in which we can use this valuation method. As we have already seen in the article on what valuation methods to use at all times, the cash flow discount, also called "discounted cash flow" or "discounted cash flow" in English, is used to value companies with cash flows that can be predictable. For example, fund managers of safety margin necessary. As you can see, it is not as difficult as it may seem.

In a future article we will see an example of valuation through cash flows, where we will put all this theory into practice.