DCF Calculator
Estimate a company's intrinsic value by discounting future cash flows to present value.
For educational purposes only. This calculator does not provide investment advice.
Present Value of FCF
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Terminal Value (PV)
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Intrinsic Value/Share
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📊 Visual Analysis
What This Calculator Does
The DCF Calculator estimates a company's intrinsic value per share by projecting its future free cash flows, discounting them to present value, and adding a terminal value. It's a fundamental valuation method used by investors and analysts to determine whether a stock is undervalued or overvalued.
Formula
Where FCF is future cash flow, r is discount rate, and n is the number of years in the future.
The terminal value is also discounted back to present value: PV(Terminal) = Terminal / (1 + r)n
Input Fields Explained
Free Cash Flow ($ millions)
The company's current annual free cash flow, in millions. Free cash flow = Operating Cash Flow - Capital Expenditures. This is the cash available to all investors (debt and equity) after funding operations and maintenance capex.
Growth Rate (%)
Expected annual growth rate of free cash flow during the projection period. Use your own reasoned estimate — sustained high growth is rare. The appropriate rate depends on the company's stage, industry, and competitive position.
Projection Period (years)
How many years to project cash flows. Longer projections are more uncertain. 5-10 years is common; beyond 15 years becomes highly speculative.
Discount Rate (%)
The rate used to discount future cash flows to present value. It should reflect the riskiness of the cash flows. Higher risk = higher discount rate. Many analysts use WACC or a required rate of return based on their own assessment.
Terminal Value Multiple
The multiple of final-year FCF used to calculate terminal value. Choose a multiple that reflects the company's growth and quality characteristics. Alternatively, use perpetual growth rate (g) with formula: TV = Final FCF × (1 + g) / (r - g).
Shares Outstanding (millions)
Total shares issued, in millions. Found in the company's most recent report. Used to convert total equity value to per-share value.
Example Calculation
Company with $100M FCF, 5% growth for 10 years, 10% discount rate, 15x terminal multiple, 100M shares.
Year 1 FCF = $100M × 1.05 = $105M → PV = 105 / 1.10 = $95.5M
Year 10 FCF = $100M × 1.0510 = $162.9M → PV = 162.9 / 1.1010 = $62.8M
Terminal Value = 15 × $162.9M = $2,444M → PV = 2,444 / 1.1010 = $942M
Total Equity Value = Sum of PV FCF ($772M) + PV Terminal ($942M) = $1,714M
Intrinsic Value per Share = $1,714M / 100M shares = $17.14/share
If the current stock price is $20, the stock appears overvalued by about 17% based on these assumptions. If the price is $15, it appears undervalued by about 14%.
How to Read the Result
The sum of all projected cash flows discounted to present value. This is the value of the company's operations during the projection period.
The discounted value of the company beyond the projection period. Terminal value often represents a large portion of total value.
The estimated fair value per share. Compare this to the current stock price to determine if the stock is undervalued (price < intrinsic) or overvalued (price > intrinsic).
Common Mistakes
- Using too high a growth rate. Companies cannot grow faster than the economy forever. A 15% growth rate implies doubling every 5 years — only the most exceptional companies achieve this for long periods.
- Using too low a discount rate. A low discount rate overstates value. If you use 5% for a risky stock, you're assuming it's as safe as government bonds, which is rarely true.
- Assuming growth will continue forever. Most companies eventually mature and growth slows toward broader economic rates. Assuming high perpetual growth overstates value.
- Ignoring sensitivity to inputs. DCF results change dramatically with small changes to growth rate or discount rate. Always run scenario analysis with different assumptions.
- Taking the result literally. DCF produces an estimate based on assumptions. The intrinsic value is not a precise target price; it's a model output that should be one input among many.
When This Calculator Is Useful
- Estimating the fair value of a mature, stable company with predictable cash flows
- Understanding what market expectations are implied by current stock prices (reverse DCF)
- Comparing valuations across companies using consistent assumptions
- Evaluating how changes in growth expectations would affect stock value
Limitations
- DCF assumes constant growth rates, which rarely reflects reality
- Results are extremely sensitive to discount rate and growth rate assumptions
- Not suitable for companies with negative or highly volatile cash flows
- Does not account for changes in capital structure (debt/equity mix) over time
- Terminal value often dominates the result and is the most uncertain component
Frequently Asked Questions
What is DCF?
DCF (Discounted Cash Flow) analysis estimates the present value of a company by projecting its future free cash flows and discounting them back to today using a discount rate. It's a fundamental valuation method that values a company based on the cash it's expected to generate.
What is a good discount rate?
There is no single correct discount rate. It should reflect the riskiness of the cash flows you are modeling. Many analysts use the WACC (Weighted Average Cost of Capital) as the discount rate. The appropriate rate depends on the company's risk profile, industry, capital structure, and your own required return threshold.
What is terminal value?
Terminal value captures the value of the company beyond the projection period. It's often calculated as a multiple of the final year's cash flow (e.g., 15x FCF) or using a perpetual growth model. Terminal value often represents a large portion of total DCF value.
What if the calculated intrinsic value is below current price?
If intrinsic value is below current price, the stock may be overvalued based on your assumptions. However, DCF is sensitive to inputs — small changes in growth rate or discount rate can significantly change the result. Always do scenario analysis.
How sensitive is DCF to the terminal value assumption?
Terminal value often accounts for a large portion of the total DCF valuation, making it the most impactful assumption in the model. Small changes in the terminal growth rate or discount rate can swing the valuation significantly. Always run sensitivity analysis by varying these assumptions to understand the range of possible valuations rather than relying on a single point estimate.
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Educational Disclaimer
This calculator is for educational and informational purposes only. It does not provide investment, financial, tax, or legal advice. The results are based on the inputs and assumptions you provide and may not reflect real market conditions, fees, taxes, or risks. Always do your own research or consult a qualified professional before making financial decisions.