Which industries commonly rely on DCF for valuations?

The choice of utilities, real estate, and technology as industries that commonly rely on discounted cash flow (DCF) for valuations is well-founded due to the characteristics intrinsic to these sectors.

Utilities generate consistent and predictable cash flows due to their regulated nature and the essential services they provide, which are less sensitive to economic fluctuations. This stability allows for more accurate projections of future cash flows, making the DCF method particularly effective in valuing these companies.

Real estate also aligns well with the DCF approach, as it typically involves assets that produce steady cash flows over time, such as rental income from properties. Investors can project future cash flows based on lease agreements and other income-generating metrics, allowing a clear application of the DCF model to evaluate investment opportunities.

In the technology sector, while cash flows may be more volatile, many established firms have predictable revenue streams through subscriptions or recurring services, which can still be effectively modeled using DCF. Especially for tech companies with strong competitive advantages and a clear growth trajectory, the DCF method enables potential investors to project future earnings with greater clarity.

The other industries listed do not typically rely on DCF as heavily due to various factors, such as greater uncertainty in cash flows or reliance on different valuation methods more suited to