Which valuation method evaluates an asset's worth based on the present value of its expected cash flows?

The valuation method that evaluates an asset's worth based on the present value of its expected cash flows is the discounted cash flow (DCF) analysis. This approach involves estimating the future cash flows that an asset is expected to generate and then discounting those cash flows back to their present value using an appropriate discount rate. This discount rate often reflects the risk associated with the cash flows, as well as the time value of money.

DCF analysis is particularly useful for assessing the intrinsic value of an investment, as it allows for a detailed examination of the expected future performance of the asset, rather than relying solely on current market conditions or comparative metrics. By focusing on cash flows, this method provides a fundamental understanding of how much the asset should be worth based on its ability to produce those cash flows over time.

The other valuation methods do not focus on cash flows in this way. Market comps analysis compares the asset to similar assets in the market, the sum of the parts valuation breaks down a complex entity into its individual components to value each separately, and liquidation value assessment estimates the worth of an asset if it were to be sold off quickly. These methods may capture market sentiment or specific circumstances but do not directly evaluate an asset's intrinsic value through projected cash flows like D