DCF is the discounted cash flow method, which adds up the future discounted cash flows of enterprises and calculates the intrinsic value of enterprises. Because the essence of enterprise value is its future profitability, the cash flow discount method needs to determine the growth rate and discount rate in addition to the most basic cash flow.

1. Cash flow discount method model:

Among them, the most accurate valuation method in theory is the cash flow discount method model, which discounts all the cash flows of an enterprise before today, and the value obtained is the intrinsic value of the enterprise. DCF valuation method, in fact, has never been able to accurately guide us to make investments. The important thing is that it tells us an idea, and this is its strength.

Second, the discount:

Before we understand the valuation method of dcf, we must understand a basic concept called discount, which means to measure the value of future currency with the present. Dcf calculates the operating value, which is the value calculated by the cash flow related to operating business. When calculating the enterprise value, we need to add non-operating assets to the value calculated by DCF and subtract non-operating liabilities.

So the first answer deducted some interest-bearing liabilities. Some netizens simply said: DCF is a theoretical model with poor operability, which is only applicable to companies with very stable long-term profits and cash flow. Income method is a common practical method, which is widely used.

Generally speaking, this method is complicated and can be said to be impractical. Although Buffett recommended it, Charles Munger said he had never seen him do it. Because the performance and cash flow of stocks are always changing, there is no standard, so the accuracy of calculation and prediction is actually not high.

However, we need to understand that the growth rate of enterprises cannot grow at a high speed forever, and in the long run, the growth rate of enterprises cannot be greater than the growth rate of GDP. Therefore, when the high-speed growth period of enterprises drops to the growth rate close to GDP, we think it has reached the stable growth period.

At the same time, DDM is a dividend discount, so it reflects the equity value. DCF is the discounted cash flow of the company, so it reflects the value of the company.