Reverse DCF calculator
Instead of guessing a fair value, ask what the price already assumes: the yearly free cash flow growth that makes a company worth its market value today.
How a reverse DCF works
A normal DCF starts with your growth guess and ends with a value. A reverse DCF runs the other way: it starts from the price the market is paying today and solves for the growth that price assumes. You then ask a simpler question than "what is it worth?": is that growth believable?
The formula
Value today = the sum of each year's free cash flow, FCF × (1 + g)^t, divided by (1 + r)^t for years 1 to N, plus a terminal value of FCF_N × (1 + g∞) / (r − g∞), also discounted back N years. The calculator finds the g that makes this equal the market value.
Reading the answer
- Compare it with what the company has delivered. If the price needs 15% a year and free cash flow grew 6% over the last decade, the market is betting on a change.
- A low or negative answer means the price assumes little growth, often the case for mature or out-of-favour companies.
- It is very sensitive to the discount rate. Try a point higher and lower to see the range.
Limits
It uses one year of free cash flow, which can be unusually high or low; buybacks, debt and cash aren't modelled separately; and it can't value a company with negative free cash flow. For revenue, margins and a full model, open a company's Modeling tab in Investingly.
For education, not investment advice.