Compounding is helpful to know the future values, of the cash flow, at the end of the particular period, at a definite rate. Contrary to this, Discounting is used to determine the present value of the future cash flow, at a certain interest rate. Here, in this article, we’ve described the differences between compounding and discounting. Discounted Cash Flow (DCF) formula is an Income-based valuation approach and helps in determining the fair value of a business or security by discounting the future expected cash flows. Under this method, the expected future cash flows are projected up to the life of the business or asset in question and the said cash flows are discounted by a The Discounted Cash Flow (DCF) method uses the projected future cash flows of the business after subtracting the operating expenses, taxes, changes in working capital, and capital expenditures.