concept of discounted cash flow refers to the process of bringing the value of transactions made at different times, to the value relevant to the present time.For example, for the sale of any company required its re-evaluation, that is, the determination of the cost of taking into account the changing market conditions.Very often the method of discounted cash flows in the implementation of transactions in investments.After all, to make the cost worthwhile investment, you must take into account any changes in the value of the asset.
It should be noted that the use of this technique requires the development of specific skills and sufficient knowledge.Only a specialist will be able to explore each component and accurately calculate the present value of a project.Discounting cash flows has the properties of time, as the new value of quickly losing its relevance, especially at the micro level, when influenced by any movement of assets and resources.
for more accurate and reliable information specialist settles in two ways.The first method takes into consideration the time factor, and the second, respectively, does not take it into account.Discounting cash flows allows the investor to make a decision to invest in view of the risk factors and the actions of inflation.It is possible to compare the profit obtained in different periods of time.To do this, you get the difference between the income and assets all expenses prodiskontirovannyh using the same interest rate.Thus obtained net discounted cash flows.
accuracy and correctness of the results of the analysis depend not only on the data provided, but also on the correct selection of the discount rate.To determine it using one of the three popular methods: the calculation of the weighted average cost of funds, an analysis of assets designed for long-term use, and cumulative build.The latter method uses the most respected by professionals and used more often.This is due to the fact that this method takes into account as accurately as possible the degree of riskiness of the transaction.
discounting cash flows is considered the most reliable method of determining the rationality investment.Its advantages are not subject to any doubt.But there is also a drawback, which is a laborious process.For the most accurate and truthful results will require significant investment of time and a lot of patience on the part of the specialist.
In addition, discounted cash flow takes into account not only the risks but also inflation expectations.Accounting for changes in inflation can be accomplished in one of two basic methods.In the first method, the inflation component is taken into account in the calculation of the discount rate, and the second version of deflation is carried out during each flow accounting.That is, the second method involves the incorporation of inflation changes immediately.
flow discounting method is based on the compilation of a particular model of financial activity of the company.As a rule, such a model is developed based on the analysis of the income statement and documents reflecting the movement of cash and balances with the company.To obtain the free cash flow necessary to the flow of capital from operating activities reduced by the amount of investment.The resulting value is considered to be income funds the organization, part of which goes to payments to lenders and borrowers, and is distributed among all shareholders in the form of dividend payments.
According to the analysis conducted using discount specialist concludes that the possibility of improving the production process, the feasibility of the involvement of funds to other projects in order to increase profits in the future.
