DCF is a valuation method that values an asset today based on its estimated future cash flows. It's also referred to as an intrinsic valuation method because it's independent of external factors and instead depends on a company's ability to generate cash flows. The purpose of DCF analysis is to estimate the return an investor would receive from an investment, adjusted for the time value of money.

The time value of money assumes that a dollar that you have today is worth more than a dollar that you receive tomorrow because it can be invested. As such, a DCF analysis is useful in any situation where a person is paying money in the present with expectations of receiving more money in the future.

Discounted cash flow analysis can provide investors and companies with an idea of whether a proposed investment is worthwhile. It is analysis that can be applied to a variety of investments where future cash flows can be reasonably estimated. Its projections can be tweaked to provide different results for various what if scenarios. This can help users account for different projections that might be possible.

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The major limitation of discounted cash flow analysis is that it involves estimates, not actual figures. So the result of DCF is also an estimate. That means that for DCF to be useful, individual investors and companies must estimate a discount rate and cash flows correctly. Furthermore, future cash flows rely on a variety of factors, such as market demand, the status of the economy, technology, competition, and unforeseen threats or opportunities. These can't be quantified exactly thus DCF shouldn't necessarily be relied on exclusively even if solid estimates can be made.

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