The idea of discount cash flow or DCF methods is to try to calculate the intrinsic value of a stock. As Benjamin Graham wrote back in 1934, "Intrinsic value is an elusive concept. In general terms it is understood to be that value which is justified by the facts, e.g., the assets, earnings, dividends, definite prospects, as distinct, let us say, from market quotations established by artificial manipulation or distorted by psychological excesses."
The DCF methods proceeded by forecasting the "cash" that the company would generate each year for the remainder of its life. This stream of cash was then discounted back to present time. The result was referred to as the intrinsic value of the stock. Buffett described it as follows. Intrinsic value is: "the discounted value of the cash that can be taken out of a business during its remaining life."
