What is the main purpose of constructing a DCF analysis?

The primary purpose of constructing a Discounted Cash Flow (DCF) analysis is to determine the present value of expected future cash flows. This method allows analysts to estimate the intrinsic value of a business or investment based on its projected cash flows, discounted back to their present value using a suitable discount rate. This approach is built on the principle that a dollar today is worth more than a dollar in the future due to the time value of money.

By calculating the present value of future cash flows, investors and analysts can make informed decisions regarding investment opportunities, valuing companies for mergers and acquisitions, or assessing projects for capital budgeting. This methodology is fundamental in finance because it focuses on cash generation potential, rather than relying solely on historical performance or market sentiment.

The other options, while related to aspects of financial analysis, do not encapsulate the primary aim of DCF. A comparison with market valuations can be an outcome of a DCF but is not the main purpose. Ascertaining a company's growth rate is part of the analysis process but not its core objective. Evaluating historical financial performance can provide useful context but is distinct from the forward-looking nature of DCF analysis, which focuses on future cash flows.