What does DCF analysis estimate?

Discounted Cash Flow (DCF) analysis is a valuation method that estimates the value of an investment based on its expected future cash flows. This approach takes into account the time value of money, which means that cash flows expected in the future are worth less than the same amount received today. By projecting the future cash flows and then discounting them back to the present value using an appropriate discount rate, DCF provides a comprehensive view of an investment's intrinsic value.

This method is widely used in finance and investment to evaluate the potential profitability of an investment or project by focusing on the cash generation potential over time, making it a key tool for investment analysis and decision-making. The other choices, while related to financial analysis in general, do not capture the specific purpose of DCF analysis as accurately. For instance, future sales growth is a component that might feed into cash flow projections but does not alone represent the DCF's fundamental purpose. Similarly, current market trends and the cost of debt financing address different aspects of financial assessment rather than the valuation of an investment based on its cash flows.