Meaning and model scope
DCF is a valuation approach that discounts expected cash flows to the valuation date. The analyst forecasts receipts and payments, selects an appropriate discount rate and brings future amounts back to the present. Cash flows to all capital providers and cash flows only to equity holders require different, internally consistent models.
Illustrative calculation
If a hypothetical project is expected to produce a single payment of 110,000 roubles in one year and the selected discount rate is 10%, the present value of that payment is 100,000 roubles. The example assumes that the stated cash flow is received; a real valuation must account for uncertainty and possible alternative outcomes.
Key assumptions and limitations
DCF does not turn a forecast into a fact. Growth rates, capital expenditure, working capital and the value after the explicit forecast period are especially important. It is incorrect to discount profit instead of the appropriate cash flow or to mix currencies and rates. Scenarios and sensitivity to key assumptions help test the resilience of the valuation rather than relying only on the model’s final number.