Discounted cash flow (DCF) is a valuation method used to estimate the present fair value of an investment, security, project, company, or asset based on its expected future cash flows. The method incorporates the time value of money, which means that money in the future is worth less than money today. DCF analysis attempts to find the present value of expected future cash flows using a discount rate. The discount rate is usually the companys cost of capital, which is the interest rate and loan payments or dividend payments to shareholders.

DCF analysis is widely used in investment finance, real estate, private equity, and corporate finance management. It can be applied to any projects or investments that are expected to generate future cash flows. The DCF formula is derived from the present value formula for calculating the time value of money and compounding returns. The formula is as follows:

$$DPV = \frac{FV}{(1+r)^n}$$

where DPV is the discounted present value of the future cash flow (FV), or FV adjusted for the delay in receipt; FV is the nominal value of a cash flow amount in a future period; r is the discount rate; and n is the number of periods.

DCF analysis has advantages and disadvantages. Advantages include that it can provide investors and companies with an idea of whether a proposed investment is worthwhile, and it can be applied to a variety of investments and capital projects where future cash flows can be reasonably estimated. Its projections can be tweaked to provide different results for various what-if scenarios, which can help users account for different projections that might be possible. Disadvantages include that it involves estimates, not actual figures, so the result of DCF is also an estimate. That means that for DCF to be useful, individual investors and companies must estimate a discount rate and cash flows correctly.