Discounted Cash Flow, or DCF is a method of valuing a company. In this method, the value of a company is equal to the amount of free cash flows expected to be generated by the company in the future and discounted at a rate that mesures its risk profile. The discount rate used is the appropriate Weighted Average Cost of Capital (WACC), that reflects the risk of the cashflows.
Enterprise Value is the sum of
- future free cash flows that are discounted over the explicit forecast period, i.e. the period over which there is visibility on the company's operations;
- a discounted terminal value that is calculated on the basis of an estimated growth rate carried to perpetuity;