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Not investment advice. Educational reading. See Disclaimer.
L.6 · BEGINNER · 2 MIN

DCF: What Is a Company Really Worth?

DCF estimates what a company is worth based on its future cash flows, discounted back to today. It is the most fundamental valuation method in finance.

Quiz · 5 questions ↓
§ 01
AAPL — Current Price, P/E Ratio. Open AAPL on the Ledge to see current values.
§ 02
Margin of Safety = (Intrinsic Value - Price) / Intrinsic Value
§ 03
Open any ticker and look at the **Valuation** section. Check the DCF estimate and compare to the current price.
§ 04

DCF is powerful but fragile. Small changes in growth rate or discount rate can swing the result by 50%. That is why margin of safety exists: it is your buffer against being wrong.

§ 05
Your DCF model says intrinsic value is $150/share. The stock trades at $100 — a 50% upside. How confident should you be?
Five questions · AI feedback

Sit with the ideas.

A DCF model says a stock is worth $150 but it trades at $100. What is the margin of safety?

Why:

Other lessons in this course.

  1. 01What is a P/E Ratio?
  2. 02EV/EBITDA: The Professional's Metric
  3. 03Price-to-Book: Asset Value
  4. 04Cost of Capital: What Discount Rate to Use
  5. 05Buybacks: When Returning Cash Beats Reinvesting It
  6. 06DCF: What Is a Company Really Worth?— reading now
  7. 07Putting It Together: Is This Stock Cheap?
  8. 08Mr. Market: Graham's Core Insight
  9. 09Circle of Competence: Buffett's Risk Framework
  10. 10Earnings Quality: Why Coca-Cola Trades at a Premium
  11. 11Earnings Predictability
  12. 12Capital Allocation: The CEO's Five Choices
  13. 13PEG Ratio: P/E Adjusted for Growth
See it on a real ticker →