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Finance GlossaryDiscounted Cash Flow
Discounted Cash Flow
Definition of Discounted Cash Flow
Discounted cash flow is a method of valuing a company in the present based on future cash flows. An investment may be profitable in the present if the discounted cash flow is above the current cost of investing.
The formula to calculate discounted cash flows is:
DCF = Cash Flow Year 1 / (1+r1)^1 + Cash Flow Year 2 / (1+r2)^2 + Cash Flow Year N / (1+r)^n
The formula to calculate discounted cash flows is:
DCF = Cash Flow Year 1 / (1+r1)^1 + Cash Flow Year 2 / (1+r2)^2 + Cash Flow Year N / (1+r)^n
Related Terms
Backtesting
Backtesting means simulating trading strategies and models using historical data to understand whether they are effective.
In many ways, backtesting is considered to be an important part of crafting trading strategies that work.
If backtesting leads to positive results, then the trading strategy or model may be viable.
In many ways, backtesting is considered to be an important part of crafting trading strategies that work.
If backtesting leads to positive results, then the trading strategy or model may be viable.
Listing Date
The listing date is the specific date on which a company's shares are available for trading & investing on a stock exchange, in the secondary market. You could say that the listing date marks the beginning of the company's journey as a publicly traded entity.
Lock In
Lock-in is the period during which you can not sell shares or other financial instruments. The purpose of a lock-in is to ensure that the price and liquidity of the instrument do not take a sudden nosedive. Lock-in is commonly applied to shares held by promoters or major shareholders. You may have heard the term while investing in mutual funds as well, where it is used in reference to close-ended funds and ELSS funds.
Undervalued
A stock is considered undervalued when its market price is lower than its intrinsic or fair value based on fundamentals such as earnings, cash flow, or assets. For example, if a company with strong profits and stable growth trades below its historical valuation multiples, investors may view it as undervalued and expect price appreciation.
Relative Vigor Index (RVI)
The Relative Vigor Index (RVI) is a technical oscillator comparing the closing price to the opening price relative to the day’s trading range, smoothed over periods. Positive values show bullish vigor as closes exceed opens, while negative signal bearish weakness. It helps confirm trends and spot divergences, often used alongside other indicators for trading signals.
Earnings Per Share
Earnings Per Share or EPS refers to the amount of profit that a company generates per outstanding share it has in the stock market. It is calculated by dividing the net income of a company by its shares outstanding.
Formula to calculate Earnings Per Share: Net Income / Number of Outsanding Shares
Generally, dividends distributed to preferred shareholders are deducted from the net income for EPS calculations. The EPS of a company can thus indicate whether or not it is generating enough profit. It can also be used as a valuation metric.
Formula to calculate Earnings Per Share: Net Income / Number of Outsanding Shares
Generally, dividends distributed to preferred shareholders are deducted from the net income for EPS calculations. The EPS of a company can thus indicate whether or not it is generating enough profit. It can also be used as a valuation metric.
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