With the IDW Standard S1, the renowned Institut der Wirtschaftsprüfer (IDW) recognises the DCF method as a valuation method on an equal footing with the capitalised earnings value method.
The discounted cash flow methodis an investment-theoretical method and represents a given to calculate the value of a company. "Discounted cash flow" - or DCF for short - means "discounted cash flow". Accordingly, in the DCF method, expected future cash surpluses are discounted to their present value. The values determined are then added up to ultimately determine the enterprise value, the so-called capital value or present value.
This method has been widely used for some time, particularly in English-speaking countries, whereas in Germany the capitalised earnings value method has been more popular to date. However, both methods have a great deal in common. In the meantime, the DCF method is also gaining more acceptance in Germany. This is partly due to the increasing internationalisation of company sales. With the IDW Standard S1, the renowned Institute of Auditors (IDW) recognizes the DCF method as a valuation method on an equal footing with the capitalized earnings method. This is in effect "the free pass" for use in Germany.