A discount rate is the rate used to convert a future sum of money into its value today, reflecting the time value of money and risk. The higher the rate, the less a future cash flow is worth now. In company valuation the discount rate is usually the WACC; for equity-only cash flows it is the cost of equity.
Worked example
$1,000 received in three years, discounted at 8%, is worth 1,000 ÷ (1.08)³ = $794 today.
Why it matters
The discount rate is the most powerful lever in any DCF: distant cash flows and terminal value are highly sensitive to it. This is why analysts test a range of rates rather than relying on a single number.
Frequently asked questions
For valuing a whole company it usually is. For valuing cash flows that belong only to shareholders, the discount rate is the cost of equity instead.
Built & maintained by Worthmap · Last updated November 1, 2026
Educational use only. This tool provides estimates for informational purposes and does not constitute financial, investment, tax, or legal advice. Results are based on inputs you provide and mathematical models, they do not guarantee future performance. Always consult a qualified financial adviser before making investment decisions.