Discounted Cash Flow (DCF) is a method used in finance to estimate the value of an investment today based on projections of how much money it will generate in the future. The principle behind DCF is that a dollar today is worth more than a dollar in the future due to its potential earning capacity. To calculate DCF, future cash flows are forecasted and then reduced or 'discounted' to their present value using a discount rate, which often reflects the cost of capital or required rate of return for the investment.

For example, if a company projects that an investment will yield $10,000 in a year and $10,000 the following year, the present value of these cash flows is determined by discounting them back to today's value using the discount rate. If the calculated present value is higher than the initial investment cost, the investment might be considered worthwhile. Conversely, if the calculated value is lower, it might not be considered viable.

DCF is widely used for making financial decisions, from valuing businesses during a merger or acquisition to evaluating stock investments. It’s a cornerstone method in the finance field, perfectly illustrating the principle of the time value of money and its implications for investment and valuation decisions. DCF’s accuracy depends largely on the realistic nature of the cash flows predicted and the appropriateness of the selected discount rate.