DCF Calculator
Perform a discounted cash flow (DCF) analysis to estimate the intrinsic value of a business or investment. Project free cash flows over 5 years, apply a discount rate, and calculate a terminal value to determine what an investment is truly worth today.
Discounted Cash Flow (DCF) analysis is the gold standard for valuing businesses, investments, and projects with long-term cash-generating ability. The premise: a business is worth the present value of all the cash it will generate in the future. DCF translates that premise into a structured calculation — project free cash flows for an explicit forecast period (typically 5–10 years), estimate a "terminal value" for everything beyond, discount all cash flows back to today at the appropriate rate, sum them up.
The output is an "intrinsic value" estimate that can be compared to the current market price. If intrinsic value (per share) > current stock price, the investment may be undervalued. If less, it may be overvalued. Sophisticated investors use DCF as the primary valuation tool; activist investors use it to justify takeover bids; private equity buyers use it to set acquisition prices; corporate boards use it for strategic capital allocation.
This calculator implements a standard 5-year DCF with a Gordon Growth terminal value calculation. Enter current free cash flow, expected growth rate, discount rate (typically the company's WACC — weighted average cost of capital), terminal growth rate (long-run perpetual growth, usually 2–3%), shares outstanding, and net debt. The output is an intrinsic value per share. Critically: DCF outputs are sensitive to assumptions. Small changes to growth rate, discount rate, or terminal growth produce large swings in intrinsic value. Sensitivity analysis is essential — never anchor on a single DCF result.
Inputs
Results
Enterprise Value
$9,857,143
Equity Value
$9,657,143
Value Per Share
$9.66
PV of Terminal Value
$7,357,143
75% of EV
Enterprise Value Breakdown
Projected Free Cash Flows
Projected Cash Flows
| Year | Free Cash Flow | Discount Factor | Present Value |
|---|---|---|---|
| 1 | $550,000.00 | 0.91% | $500,000.00 |
| 2 | $605,000.00 | 0.83% | $500,000.00 |
| 3 | $665,500.00 | 0.75% | $500,000.00 |
| 4 | $732,050.00 | 0.68% | $500,000.00 |
| 5 | $805,255.00 | 0.62% | $500,000.00 |
Formula
How to use this calculator
- Enter the current free cash flow (FCF). FCF is operating cash flow minus capital expenditures. For public companies, find in the cash flow statement. For private companies, estimate from financial projections.
- Enter the expected FCF growth rate for years 1–5. This should reflect the business's realistic growth potential — for mature businesses, 3–8%; for growth-stage businesses, 10–25%; for early-stage, sometimes 30%+. Higher growth typically requires more capital investment, so adjust accordingly.
- Enter the discount rate. This is typically the company's Weighted Average Cost of Capital (WACC) — the blended cost of debt and equity financing. For most public companies, this is 8–12%. Higher-risk businesses (startups, emerging markets) use 15–25%+.
- Enter the terminal growth rate. This is the perpetual growth rate after year 5, representing long-run sustainable growth. Should be no higher than long-run GDP growth (2–3%). Higher terminal growth produces dramatically higher valuations but is rarely realistic.
- Enter shares outstanding (for public companies, found on the balance sheet or stock summary).
- Enter net debt (total debt minus cash). For companies with more cash than debt, enter a negative value (net cash).
- Review the per-share intrinsic value. Compare to current market price: if intrinsic value > market price, the stock may be undervalued; if less, possibly overvalued.
- Run sensitivity analysis: rerun with growth rates ±2%, discount rates ±2%, terminal growth ±1%. If the valuation swings dramatically, the result is highly dependent on assumptions and should be treated with caution.
Worked examples
Mature business — modest growth
Current FCF $10M, 5% growth, 9% WACC, 2.5% terminal growth, 10M shares, no net debt. Year 1: $10.5M (PV $9.6M) Year 5: $12.8M (PV $8.3M) Sum years 1-5: ~$45M PV Terminal value: $12.8M × 1.025 / (0.09 − 0.025) = $202M PV of TV: $131M Enterprise Value: $176M Per share: $17.60 If the stock trades at $14, it may be undervalued. If at $22, possibly overvalued. The DCF provides a value range; sensitivity analysis at slightly different growth rates (3-7%) might produce a range of $14-22 — meaning the stock is fairly valued at current price.
Growth business — high growth rate
Current FCF $5M, 25% growth, 12% WACC, 3% terminal growth, 5M shares, $10M net debt. Year 1: $6.25M (PV $5.6M) Year 5: $15.3M (PV $8.7M) Sum years 1-5: ~$36M Terminal value: $15.3M × 1.03 / (0.12 − 0.03) = $175M PV of TV: $99M Enterprise Value: $135M Equity Value: $125M Per share: $25 High-growth businesses are heavily dependent on the growth rate assumption holding. If actual growth comes in at 15% instead of 25%, intrinsic value drops to ~$17/share. High-growth DCFs are inherently fragile — small assumption changes produce large valuation changes.
Terminal value sensitivity
Same business: $5M FCF, 10% growth, 10% WACC. Vary terminal growth assumption. At 2% terminal growth: TV = year 5 FCF × 1.02 / 0.08 = 12.75 × value factor → maybe $9/share At 3% terminal growth: TV = year 5 FCF × 1.03 / 0.07 = larger factor → $10.50/share At 4% terminal growth: $13/share At 5% terminal growth: $17/share A single percentage point change in terminal growth assumption produces 30%+ swing in valuation. This is why "small differences in growth assumption" routinely justify wildly different stock price targets among analysts. Terminal growth is the most important and most uncertain DCF input.
When to use this calculator
Use this calculator for fundamental analysis of stocks, business valuation, project evaluation, M&A analysis, or any decision requiring intrinsic value estimation.
DCF is most useful for: stable mature businesses with predictable cash flows (utilities, consumer staples, mature tech companies), businesses with substantial competitive moats that allow forecasting beyond 5 years with confidence, and analytical work where you can run multiple scenarios.
DCF is less useful for: very early-stage businesses (cash flows aren't projectable), highly cyclical businesses (any specific year's cash flow may not reflect normal), banks and insurance companies (different valuation frameworks apply), and businesses in rapidly disrupting industries (terminal growth assumptions break down).
Pair this with the NPV calculator (cash flow analysis for projects), the IRR calculator (rate-of-return view of the same cash flows), the WACC calculator (for the discount rate input), the CAGR calculator (to back-test growth assumptions), and the present-value/future-value calculators for the underlying math.
Critical DCF practices:
1. **Always run sensitivity analysis.** Small changes in growth rate, discount rate, and terminal growth produce large changes in valuation. A single point estimate is meaningless without understanding the range.
2. **Terminal value dominates.** For most DCFs, 60–80% of total value comes from the terminal value. Yet terminal value is based on the most uncertain assumption (perpetual growth rate). Be conservative with terminal growth (3% max for most businesses).
3. **Match cash flow horizon to predictability.** 5 years is standard, but use 10 years for very predictable businesses (utilities, mature regulated industries) and 3 years for less predictable. Beyond 10 years, the terminal value better captures the value than detailed projection.
4. **Use FREE cash flow, not earnings or operating cash flow.** FCF = Operating Cash Flow − Capital Expenditures. Capital-intensive businesses (manufacturing, telecom) need to subtract significant capex; capital-light businesses (software) have FCF closer to operating cash flow.
5. **DCF doesn't capture everything.** Strategic value of acquisitions, optionality value, brand value beyond cash flow, regulatory changes — all can affect real value beyond DCF. Treat DCF as one input among several, not as a single authoritative answer.
6. **Compare to multiples-based valuation.** P/E, EV/EBITDA, and price-to-sales multiples provide a market-based check on DCF outputs. Wide divergence between DCF and multiples suggests revisiting assumptions.
Common mistakes to avoid
- Using too-optimistic growth rates. Many "buy" recommendations are justified by aggressive growth assumptions that won't materialize. Validate growth against industry peers, historical track record, and end-market growth.
- Using terminal growth rates above long-run GDP. Terminal growth represents perpetual sustainable growth. Above 3–4% is rarely defensible for any business — no business can grow faster than GDP forever.
- Ignoring the discount-rate-vs-terminal-growth math. If discount rate is close to terminal growth (e.g., 10% WACC with 8% terminal growth), the denominator (r − g) becomes small and terminal value explodes. Always check that terminal growth is meaningfully below the discount rate.
- Forgetting net debt. Equity value = enterprise value minus net debt. High-debt companies have lower equity value per share even with the same enterprise value as a debt-free peer.
- Treating DCF as precision. DCF outputs depend on assumptions that no one knows precisely. Use as one input among many, not as a single "answer." Run sensitivity analysis.
- Overlooking capital expenditure needs. Free cash flow subtracts capex, but growth often requires more capex than current run-rate. Aggressive growth assumptions should be paired with elevated capex assumptions for honest analysis.
Frequently Asked Questions
Sources & further reading
- Valuation Approaches — Investor Education — U.S. Securities and Exchange Commission
- Annual Report Forms 10-K — public company financials — U.S. Securities and Exchange Commission
- FINRA — Investing Concepts — Financial Industry Regulatory Authority