Glossary

Net Present Value

The net present value is the value of future cash flows discounted by a discount rate

Discount Rate

The discount rate is a notional rate of return used to try to value future cash flows in today’s money. It can try to incorporate an estimate of the riskiness of those cash flows. A higher discount rate produces a lower net present value and vice versa.

Discounted Cash Flow

Some investors use Discounted Cash Flow (DCF) to value companies. The methodology involves forecasting future net cash flows into a business and discounting them using a discount rate. As an example, Company A has forecast cash flows of £10 in year one, £20 in year two, £50 in year three and £500 in year 4 (as […]

ROE

ROE is an acronym for return on equity. It is calculated by dividing net profits/income by shareholders’ equity (the figure on the bakance sheet that represents the value of the company that shareholders own after deducting all debt and anyone else’s interests in the company.

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Glossary

Net Present Value