Discounting

The conversion of a future value to an equivalent value that is received immediately is done by discounting. An asset holds value only if a positive cash flow is generated by it for a business. Discounting can be employed on different types of cash flows such as fixed-term deposits, stock dividends or a interests of bond.

The concept of discounting is often used by companies to decide on product pricing. Pricing software can be used to manage and analyze pricing strategies for products, which include discounting as an element. Sales profitability can also be tracked and customer-specific discounting schemes can be set.

The rates of return used to discount future payments to determine their present value is known as discount rates.  Retail pricing software is used by retailers to create and apply discounts and enables dynamic pricing mechanisms. 

Weighted average cost of capital, Cost of equity, Cost of debt, Minimum acceptable rate of return and Risk-free rate are five discount rates that is utilized by business and corporate finance to estimate future payments.

Discounting is generally leveraged to make operations and pricing strategies more efficient. Companies should plan a strategy with measurable outcomes, understand margins and account for variables and leverage discounts to strengthen branding when discounting.