Description

A discounted cash flow valuation is used to determine if an investment is worthwhile in the long run. For example, in investment banking, a DCF valuation is used to determine if a potential merger or acquisition is worth it. Additionally, DCF valuation is in real estate and private equity.
Outside of corporate finance, DCF valuations can help business owners make budget decisions and determine their own projected value.
Discounted cash flow (DCF) valuation is a type of financial modeling, and it is a common type among many finance professionals. There are two key ways you can include DCF skills on your resume.
Skills section: You can list “financial modeling” in your skills section. You can even include DCF, and any other types of modeling you are in, alongside financial modeling.
Work or internship experience section: You can mention an instance where you created a DCF model as part of prior work or internship experience.  A DCF model is on the idea that a company’s value is by how well the company can generate cash flows for its investors in the future.
Discounted cash flow calculations have been in some form since money was first lent at interest in ancient times. Studies of ancient Egyptian and Babylonian mathematics suggest that they used techniques similar to discounting future cash flows. Modern discounted cash flow analysis since at least the early 1700s in the UK coal industry.

The 3-statement models that support a DCF are usually annual models that forecast about 5-10 years into the future. However, when valuing businesses, we usually assume they are a going concern. In other words, the assumption is that they will continue to operate forever.

That means that the 3-statement model only takes us so far. We also have to forecast the present value of all future until levered free cash flows after the explicit forecast period. This is the 2-stage DCF model. The first stage is to forecast the un levered free cash flows explicitly (and ideally from a 3-statement model). The second stage is the total of all cash flows after the stage.