Calculator
DCF Intrinsic Value Calculator
Check the terminal-value share first. When most of the value comes from the years after your forecast, small changes in the discount rate or terminal growth move the answer a lot. Run a low, middle and high case rather than trusting one number.
What it calculates
A discounted cash flow (DCF) model values a business as the cash it will produce in the future, translated into today's money. Enter starting free cash flow, a growth rate, a discount rate, terminal growth, net cash or debt, and shares outstanding. The calculator returns intrinsic value per share, the gap to the current price, and how much of the answer depends on the years beyond your forecast.
How this dcf intrinsic value calculator works
The calculator grows free cash flow at your chosen rate for each forecast year and discounts each year back to today. It then values all cash flow after the forecast with a terminal value that grows at a constant rate forever, discounts that too, and adds net cash or subtracts net debt to get equity value. Dividing by diluted shares gives value per share.
Formula
Equity value = Σ FCFₜ ÷ (1 + r)ᵗ + [FCFₙ × (1 + g) ÷ (r − g)] ÷ (1 + r)ⁿ + net cash
A DCF is only as good as its inputs, and its output is very sensitive to the discount rate and terminal growth. It suits companies with positive, fairly predictable free cash flow. It handles cyclical, early-stage or loss-making businesses poorly, and it ignores dilution from future stock awards unless you lower the cash flow to allow for it.
Primary specifications
Before you use the result
Assumptions
- • Free cash flow grows at one rate during the forecast period, then at the terminal rate forever.
- • The discount rate is higher than terminal growth.
- • Net cash and diluted shares are taken from the latest balance sheet and do not change.
Quick start
- 1. Take free cash flow from the cash flow statement and average several years if the latest one is unusual.
- 2. Run three cases with different growth and discount rates, and write down what would have to be true for each.
- 3. Compare the result with the current price, and check what growth today's price already assumes with the reverse DCF calculator.
Inputs and units
| Input | Unit | Default |
|---|---|---|
| Starting annual free cash flowOperating cash flow minus capital expenditure, from the cash flow statement. | US$ millions | $1B |
| Annual FCF growth | percent | 8% |
| Forecast period | years | 5 years |
| Discount rateThe annual return you require for the risk you're taking. | percent | 9% |
| Terminal growthGrowth forever after the forecast. Keep it at or below long-run economic growth. | percent | 2.5% |
| Net cash (negative for net debt) | US$ millions | $-2B |
| Diluted shares outstanding | millions of shares | 500 million |
| Current share price | US dollars | $30 |
Worked example (hypothetical)
DCF Intrinsic Value Calculator: worked example
Hypothetical example using the calculator's default inputs. The numbers are illustrative, not a forecast or a quote.
| Starting annual free cash flow | $1B |
|---|---|
| Annual FCF growth | 8% |
| Forecast period | 5 years |
| Discount rate | 9% |
| Terminal growth | 2.5% |
| Net cash (negative for net debt) | $-2B |
| Diluted shares outstanding | 500 million |
| Current share price | $30 |
| Intrinsic value per share | $35.85 |
|---|---|
| Upside vs current price | 19.49% |
| Share of value from terminal value | 75.59% |
| Equity value | $17.9B |
With these inputs, the intrinsic value per share is $35.85.
Frequently asked questions
What is intrinsic value?
It's an estimate of what a business is worth based on the cash it will produce, rather than on what the market is paying today. Two careful investors can reach different intrinsic values because they make different assumptions about growth and risk.
What discount rate should I use in a DCF?
Use the annual return you need to justify the risk. Many investors use 8–10% for large, stable companies and more for smaller or riskier ones. Whatever you choose, test a range: a one-point change often moves the result by 15% or more.
Why does most of the value come from the terminal value?
Because a business is expected to keep producing cash long after a five- or ten-year forecast. That makes the terminal growth and discount rate the most important inputs. If the terminal value is more than about 75% of the total, treat the result with extra caution.
What's the difference between a DCF and a reverse DCF?
A DCF starts from your assumptions and estimates what the stock is worth. A reverse DCF starts from today's price and works out the growth the market is assuming. Using both shows whether your view is more or less optimistic than the market's.
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