Discounted cash flow

Discounted cash flow is a way to figure out how much something is worth - like a house, or a car, or a business. It works like this: take the money (or cash) you expect to get in the future and figure out how much it is worth now. To do that, you first have to guess how much money you might get in the future from this thing, like how much rent you will get from renting out a house, or how much money you'd make from selling a business. Then you subtract the amount of money you'll have to spend in the future to keep that item running - like the cost of repairing the house or the cost of supplies for the business. After you subtract all the money you'll have to spend, you have the amount of money you should expect to get from this item in the future. Then, you have to figure out how much that future money is worth to you today. To do that, you take the amount of money you expect and divide it by a number called a discount rate. That discount rate is like an interest rate and it lets you know how much money today is worth more than money in the future. So if you divide your expected future money by the discount rate, you'll get the amount of money that is worth the same as your future money today. That's the discounted cash flow and it's a way to figure out how much something is worth.