Discount Rate

Discount rate means the interest rate used to estimate the present value of future money or future cash flows. In simple terms, it helps investors decide how much future money is worth today. The discount rate is important because higher discount rates make future earnings less valuable in today’s terms. This can pressure valuations, especially for companies expected to earn much of their profits far in the future. For example, when interest rates rise, investors may use a higher discount rate, which can lower the estimated value of growth stocks. Discount rate is not the same as a stock price. It is an input used in valuation, while stock price is the market price investors pay for shares.