GLOSSARY

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bodyn

total number of accounting periods 

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bodyi= 0, 1, 2, 3, ...

running number of accounting period (usually 1 year)

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bodyr

discount rate

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body--uriencoded--\mbox%7BCF%7D_i

free cash flow generated during the i-th accounting period

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body--uriencoded--\mbox%7BDCF%7D_i

discounted  value of free cash flow flow generated  generated during the i-th accounting period

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body--uriencoded--\mbox%7BDCF%7D

discounted value of total free cash flow flow generated over "n" accounting periods


The main idea of DCF is that in Economics the value of cash today is higher than value of cash tomorrow because immediate cash is already in hand and can be invested in readily available low-risk investment market opportunities and assure a certain profit. While future cash may not happen at all or may be lower than returns from readily available low-risk investment.

The corresponding discount of the cash value over time is controlled by Discount Rate (usually denoted as 

LaTeX Math Inline
bodyr
) which is normally set along with Weighted Average Cost of Capital (WACC).

Investor normally would like to compare different investment opportunities and give early returns more weight and as such comparing DCF rather than FCF.

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