Also called PV

Present value

What a future year's free cash flow is worth in today's money.

Updated 2026-09-03

How it is calculated

Present value = future cash flow × discount factor

Present value is what a future amount of money is worth today. It is the single idea the whole of finance rests on, and it comes from something anyone would accept without being told: a thousand dollars now is better than a thousand dollars in five years.

present value = future cash flow × discount factor

See discount factor. Each projected year gets its own factor, and the factors shrink the further out you look.

Two reasons the future dollar is worth less. You could have invested today's dollar in the meantime, so waiting has a cost. And the future dollar might not arrive, so waiting has a risk. The wacc bundles both into one rate, and the arithmetic above turns that rate into a number you can multiply by.

This is why the discount rate matters far more than any single year's forecast. Being wrong about year four's cash flow moves one number. Being wrong about the rate moves every number, including the terminal value, and the effect compounds with time.

See also

  • Discount factor — How much a dollar arriving in year t is worth today, adjusted to mid-year because cash arrives through the year rather than all on 31 December.
  • Sum of PV — Every discounted free cash flow across the explicit projection horizon, added up. Everything after the horizon is handled by the terminal value instead.
  • WACC — Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.

← See this one in the deck

Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.

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