Limitations of Discounted Cash Flow Valuation Models
9 min readNov 6, 2019
While the discounted cash flow (DCF) methodology is the most rigorous and financially sound for business valuation, it does have several significant limitations, namely:
- Extreme sensitivity to certain input assumptions.
- Uncertainty in calculating the terminal value of the company.
1. Sensitivity to Assumptions
Two variables overwhelmingly influence the output of a DCF model:
