What is the last step in a DCF analysis?

In a discounted cash flow (DCF) analysis, the last step involves discounting all projected cash flows back to the present value or year zero. This step is crucial because it accounts for the time value of money, reflecting the principle that a dollar today is worth more than a dollar in the future due to its potential earning capacity.

When you discount future cash flows, you use an appropriate discount rate—often the weighted average cost of capital (WACC)—which reflects the risk of those cash flows. This process allows for the calculation of the present value of expected future cash inflows, making it possible to assess the intrinsic value of an investment or project.

Performing this final step provides a conclusive value that investors can use to make informed decisions. It's essential in determining whether the investment is attractive based on the present value of its projected cash flows compared to its cost.