What is the discounted cash flow concept, and why is it essential for financial managers to understand and employ this important concept?

The discounted cash flow (DCF) concept is an important tool that financial managers use to assess the value of a business, project or investment. The idea behind DCF is to calculate the present value of future cash flows generated by an asset and then subtract any associated costs in order arrive at its overall worth. This method helps financial managers make more informed decisions since it takes into account both short-term and long-term effects when evaluating potential investments.One of the main advantages DCF is that it allows for comparisons between different assets – meaning more well rounded insights can be obtained by looking at all available options side by side before picking one out best fits needs. Additionally this approach also incorporates time value money into equation, which means that money received earlier today worth more than same amount tomorrow due its earning potential/interest rates.

Overall then understanding applying DCF essential for financial managers because not only does provide them with better quantitative data assist their decision making process but also gives them opportunity analyze various scenarios objectively without letting emotions cloud judgment; thus allowing them make sounder investments going forward!