Discounted Cash Flow Model and Working Capital (Page 1)

Vocabulary flashcards covering the Discounted Cash Flow model and basic working capital concepts from Page 1 notes.

Discounted Cash Flow (DCF) Model

A valuation method that estimates the present value of expected future cash flows by discounting them at a required rate.

DCF formula

Present Value (PV) = Σ CFt / (1 + r)^t, where CFt is the cash flow at time t and r is the discount rate.

Discount rate (r)

The rate used to discount future cash flows in a DCF to determine their present value.

Present Value (PV) of future cash flows

The current worth of expected future cash flows after applying the discount rate.

Current Assets (CA)

Assets that are expected to be converted into cash or consumed within one year (short-term assets).

Current Liabilities

Obligations that are due to be settled within one year.

Net Working Capital (NWC)

NWC = Current Assets − Current Liabilities; a measure of a company's short-term liquidity.

Working Capital

Usually defined as Current Assets minus Current Liabilities; used to assess short-term financial health.