What is discounted cash-flow method in SAP IM - Investment Management?

SAP Term: discounted cash-flow method

• Component: IM

• Component Name: Investment Management

• Description: Decision-making support for investment decisions in which the present value of future income is calculated, taking into account all expenses and the residual value, and which is then compared with the returnon other assets.

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• Key Concepts: 
  The discounted cash-flow (DCF) method is a financial analysis technique used to evaluate the potential profitability of an investment. It is used in SAP Investment Management (IM) to calculate the present value of future cash flows generated by an investment. The DCF method takes into account the time value of money, which means that a dollar today is worth more than a dollar tomorrow. 
  
  How to use it: 
  In SAP IM, the DCF method is used to calculate the present value of future cash flows generated by an investment. The DCF method takes into account the time value of money, which means that a dollar today is worth more than a dollar tomorrow. The DCF method also takes into account the risk associated with an investment, which means that investments with higher risk will have a lower present value than investments with lower risk. 
  
  Tips & Tricks: 
  When using the DCF method in SAP IM, it is important to consider the risk associated with an investment. Investments with higher risk will have a lower present value than investments with lower risk. Additionally, it is important to consider the discount rate when calculating the present value of future cash flows. A higher discount rate will result in a lower present value, while a lower discount rate will result in a higher present value. 
  
  Related Information: 
  The DCF method is closely related to other financial analysis techniques such as net present value (NPV) and internal rate of return (IRR). These techniques are also used in SAP IM to evaluate the potential profitability of an investment. Additionally, the DCF method can be used in conjunction with other financial analysis techniques such as sensitivity analysis and scenario analysis to gain further insight into an investment’s potential profitability.