Financial Glossary
Discounted Cash Flow Model (DCF Model)
A discounted cash flow (DCF) model is a valuation tool that estimates the worth of a business, project, or asset by projecting its future free cash flows and discounting them back to present value using a chosen discount rate, often the weighted average cost of capital. The model typically combines a multi-year explicit forecast with a terminal value that captures cash flows beyond the forecast horizon. The resulting sum represents what those future cash flows are worth in today's dollars.
Problem & Application
Owner-operators use a DCF model when deciding whether to buy a competing campground, refinance a property, or sell the business, because it ties value directly to the cash the asset actually generates rather than to a rule-of-thumb multiple. The output is only as reliable as the inputs, so the discount rate, growth assumptions, and terminal value need defensible support. For STR and hospitality operators with seasonal revenue, the cash flow timing and assumptions matter as much as the headline number.
In Short
A DCF model forces you to make your assumptions explicit, which is exactly why it is both powerful and easy to misuse. Treat it as a disciplined framework, not a precise prediction.