Chris Jackson, head of the Finance and Management Faculty, introduces recently published IFAC guidance* on the use of discounted cash flow analysis and net present value in evaluating investments, and outlines the underlying principles.
Recognising that professional accountants in business play an important role in helping their organisations deliver long-term value, the International Federation of Accountants' (IFAC) Professional Accountants in Business (PAIB) Committee has released new guidance on the use of discounted cash flow (DCF) analysis and net present value in evaluating investments. Entitled 'project appraisal using discounted cash flow', this guidance was released as part of the PAIB committee's new programme to develop international good practice guidance on financial and management accounting topics.
DCF analysis and estimating the net present value of cash flows involve fundamental principles of finance that support disciplined financial management in organisations. Professional accountants in business have a role in promoting and explaining the importance of these principles in their organisations, particularly where the connections between the application of financial principles and related financial theory are not easily understood or accepted.