DCF vs WACC
DCF (Discounted Cash Flow) and WACC (Weighted Average Cost of Capital) both come up in business conversations and get confused. Here's the plain-English difference, side by side, so you can use each one with confidence.
The key difference: DCF refers to discounted cash flow, while WACC refers to weighted average cost of capital — they describe different things even when they show up in the same sentence.
DCF — Discounted Cash Flow
A valuation method that estimates the present value of a business by forecasting its future cash flows and discounting them back to today.
WACC — Weighted Average Cost of Capital
The blended cost of a company's debt and equity, weighted by how much of each it uses. WACC is the discount rate most companies use to evaluate investments.
When to use DCF
Reach for "DCF" when the conversation is specifically about discounted cash flow. A valuation method that estimates the present value of a business by forecasting its future cash flows and discounting them back to today.
When to use WACC
Reach for "WACC" when the conversation is specifically about weighted average cost of capital. The blended cost of a company's debt and equity, weighted by how much of each it uses. WACC is the discount rate most companies use to evaluate investments.
FAQs
What is the difference between DCF and WACC?
DCF stands for Discounted Cash Flow — A valuation method that estimates the present value of a business by forecasting its future cash flows and discounting them back to today. WACC stands for Weighted Average Cost of Capital — The blended cost of a company's debt and equity, weighted by how much of each it uses. WACC is the discount rate most companies use to evaluate investments.
Are DCF and WACC the same thing?
No. They're often used in the same conversation because they're related, but they describe different concepts. DCF = Discounted Cash Flow. WACC = Weighted Average Cost of Capital.
When should I use DCF vs WACC?
Use DCF when you're specifically referring to discounted cash flow. Use WACC when the topic is weighted average cost of capital.