In DCF analysis, how often should cash flow forecasts be reviewed?

In Discounted Cash Flow (DCF) analysis, cash flow forecasts should ideally be reviewed regularly, and an annual review is a common best practice. This frequency allows for adjustments to be made based on new information, changes in market conditions, and shifts in the company's operating environment. Regular reviews ensure that the projections remain relevant and reflect the most current data, which is crucial for maintaining the accuracy of the DCF model.

Annual reviews are particularly beneficial because they align with typical financial reporting schedules, allowing for a comprehensive evaluation of the company’s performance and a re-assessment of growth expectations and needed adjustments due to external factors such as economic conditions or industry developments. This proactive approach mitigates the risk of relying on outdated projections, which could significantly impact the valuation and decision-making processes.