Assessing the value of a company with the method of discount cash flow

Abstract

When assessing the value of discounted cash fl ow, one of the biggest challenges presents predicting the management
for future periods. A company achieves its ingoing cash fl ow mainly through the selling of products or services.
On the other hand, outgoing cash fl ow presents the payment of business expenses (raw materials, salaries etc.), taxes,
increasing the working capital (for example acquiring stocks or reducing obligations towards suppliers) and investing in
fi xed assets (facilities, equipment, etc.). The remaining money of a company, after paying the listed outfl ows is available
for repaying debts to creditors and disbursing funds to owners. This is called free cash fl ow. When assessing the value of a
company future free cash fl ows come down to present values by the technique of discounting. With this the time value of
money as well as the risks of realizing cash fl ow are all taken into account.