DCF calculator
Value a company from its free cash flow: project it forward, discount it back to today, and compare the result with the market price.
How a DCF works
A business is worth the cash it will produce from now on, adjusted for the time and risk of waiting for it. A discounted cash flow (DCF) model projects free cash flow forward, then discounts each year's cash back to today at a rate that reflects the return you require.
The formula
Value = the sum of FCF × (1 + g)^t / (1 + r)^t for years 1 to N, plus a terminal value of FCF_N × (1 + g∞) / (r − g∞) discounted back N years. g is your growth guess, r the discount rate and g∞ the growth after year N.
Choosing the inputs
- Free cash flow: operating cash flow minus capital spending, from the cash flow statement. Use a normal year, not a one-off.
- Growth: anchor it to what the company has done. The terminal value is usually most of the answer, so be modest with growth after year N; it should not exceed long-run economic growth.
- Discount rate: many investors use 8% to 10% for large, stable companies and more for riskier ones.
Limits
Small changes to growth and the discount rate move the answer a lot. That's why the reverse DCF is a useful check: it tells you what the market is already assuming.
For education, not investment advice.