What is the primary purpose of a DCF model?

The primary purpose of a Discounted Cash Flow (DCF) model is to estimate the intrinsic value of an investment based on expected future cash flows. This method discounts projected cash flows back to their present value using a specific discount rate, which reflects the risks associated with the investment. By doing so, the DCF model helps investors and analysts determine whether an investment is undervalued or overvalued relative to its current market price.

This intrinsic valuation is crucial in investment decision-making, as it provides a more comprehensive view of a company's potential for generating profits, independent of market fluctuations. In addition to assessing intrinsic value, a well-constructed DCF model factors in variables like growth rates, operating expenses, and capital expenditures, offering a robust financial framework to support investment evaluations.

The other options do not encompass the fundamental aim of a DCF model. While it may provide insights into financial analysis, trend forecasting, or historical performance, these do not capture the intrinsic value perspective that is central to the purpose of DCF analysis.