Why don’t we discount cash flows quarterly in a DCF?

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Why do most DCFs discount annually as opposed to quarterly? Is it just because of convenience? Logically, I’d think we ought to discount cash flows to the present as soon as they are disclosed (I.e Quarterly)

Comments (2)

 
May 24, 2020 - 10:13am

First its harder to predict quarter results, if you have studied statistics you would know that its easier to diminish errors when calculating big chunks.

(E.g easier to make a smaller error (%) when estimating 2020E milk consumption in the world than in a specific countty.)

Then it would be a huge mess breaking down pay repayments and covenant analysis if you do it in a monthly basis.

Finally it would change that much the valuation, remember that you can also do a mid year convention discount to be more realistic.

But yeah, mostly its for convenience

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