  This paper closely examines theoretical and practical aspects of the widely
used discounted cash flows (DCF) valuation method. It assesses its potentials
as well as several weaknesses. A special emphasize is being put on the
valuation of companies using the DCF method. The paper finds that the
discounted cash flow method is a powerful tool to analyze even complex
situations. However, the DCF method is subject to massive assumption bias and
even slight changes in the underlying assumptions of an analysis can
drastically alter the valuation results. A practical example of these
implications is given using a scenario analysis.
