In a cash flow-based valuation, three steps are involved in measuring the value of a firm's future cash flows:
1. Estimate the firm's expected future cash flows.
2. Compute the company's cost of capital, which represents the investors' and owners' required rate of return on their investment in the business.
3. Using the firm's cost of capital as the discount rate, calculate the present value of the firm's expected future cash flows, which represents the value of the firm.