DISCOUNTING CASH FLOWS
If valuing the business by its potential earning power is the goal, die most common measure—and the one that gives the most accuratc results (assuming forecasts are correct)—is discounted future cash flows, because only cash or cash equivalents are used in the calculations. The method is called discounted cash flow analysis, or capi¬talization of future cash flows to the present value. This simply means calculating how much an investor would pay today to have a cash flow stream of X dollars for X number of years into the future