Which financial document is primarily used to generate cash flow projections for DCF analysis?

The cash flow statement is the primary financial document used to generate cash flow projections for Discounted Cash Flow (DCF) analysis. This statement provides a detailed overview of a company's cash inflows and outflows over a specific period, breaking it down into operating, investing, and financing activities.

For DCF analysis, future cash flows are crucial because they are the basis for determining the present value of a business or project. The cash flow statement directly reflects the actual cash generated and used by the company, making it the most relevant document for assessing future cash flows. It reveals the ability of the business to generate cash, which is a key factor in valuation, because ultimately, investors are concerned with the cash a company can produce to fund operations, pay debts, and distribute to shareholders.

Other documents, such as the income statement and balance sheet, do provide valuable information, but they do not focus solely on cash flow. The income statement captures revenues and expenses, which may or may not translate into actual cash flow due to non-cash items such as depreciation. The balance sheet presents a snapshot of a company’s financial position at a specific point in time without detailing cash movements over a period. Lastly, while a financial projections document may include forecasted cash flows