What is discounted cash flow (DCF)?
Discounted cash flow is when you discount your forecasted poultry farming cash flows over a number of years by a comparative rate of investment.
In other words,
It’s when you say:
“…this is what I expect my poultry farm to make over (X) years, minus the amount of interest or return I would make if I put the money into (Y) investment.”
Understanding discounted cash flow (DCF)
Having done all the guesswork to figure out how much money your poultry farm could make over, let’s say the first 6 years…
The next step is to temper your estimate against what your money could do if invested in, say a:
- savings account
- investment bond
- or property, for example…
Once you have the cash flow estimates that you poultry farm could generate over, let’s say 6 years,
You then set a fair comparative investment percentage.
If you are going to really prove that this poultry farm is worth investing in,
Rather than simply calculating it’s future profits,
You should calculate it’s future profits MINUS the money you would have gained by putting the funds in a savings account, for example.
Why do we need to do this?
Because investments always have alternatives. Your job is to decide which option will pay you back the most.
Set some realistic alternatives based on current options.
Don’t make it academic.
Your money today is really worthy of earning a significant gain on tomorrow (above and beyond it’s nearest investment alternatives).
Use this stage of financial planning the same as an athlete would use the heats before the main event.
Get your figures in shape.
And don’t do it for real until you are really ready for action.