Discounted cash flow: Handle with care

Description

Abstract: The discounted cash flow (DCF) method is commonly used to determine business value or calculate lost profits damages. DCF is a powerful tool, but it incorporates some subjective assumptions — which is why courts tend to scrutinize DCF calculations and demand that valuation experts demonstrate that they’re based on market-derived evidence. This article explains how valuators demonstrate that their analysis aligns with a company’s particular facts and circumstances. A sidebar looks at the cost of capital.