Discounted Cash Flow (DCF)

What it is

A DCF estimates a business's intrinsic value by forecasting the cash it will produce and discounting that future cash back to today. The two ingredients are:

• a growth rate for free cash flow over the next several years
• a discount rate that reflects how much you'd pay today for a dollar received in the future

Why it matters

Price isn't value. The DCF gives you a value to compare price against. When price < intrinsic value, you have a margin of safety; when price > intrinsic value, you're paying for hope.

How Cowry uses it

Cowry runs a two-stage DCF: we project free cash flow for a chosen number of years, then add a terminal value using the Gordon growth model. We always show a sensitivity grid so you can see how the answer changes as inputs change — because DCF is famously input-sensitive.

What can go wrong

• Tiny changes in growth or discount produce big swings in intrinsic value.
• Terminal value usually dominates the answer, and it depends on a perpetual growth rate.
• A DCF is only as good as your inputs. Use it as a sanity check, not gospel.