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DCF Calculator

Value a business by discounting a growing stream of cash flows and adding a terminal value.

Inputs
ValuationValued
Present value6,242,915.38
Formula
PVsum of CFt / (1 + d) ^ t
Terminal valueCFn x (1 + g) / (d - g)
ValuePV of forecast years + PV of terminal value
Inputs
  Year 1 free cash flow        500,000.00
  Growth during the forecast   8.00%
  Discount rate                12.00%
  Forecast length              5 years
  Terminal growth rate         2.50%
  Shares outstanding           1,000,000
Forecast
  Year  1   cash flow     500,000.00   discount factor 0.892857   present value     446,428.57
  Year  2   cash flow     540,000.00   discount factor 0.797194   present value     430,484.69
  Year  3   cash flow     583,200.00   discount factor  0.71178   present value     415,110.24
  Year  4   cash flow     629,856.00   discount factor 0.635518   present value     400,284.87
  Year  5   cash flow     680,244.48   discount factor 0.567427   present value     385,988.99
Terminal value
Year 6 cash flow680,244.48 x (1 + 0.025) = 697,250.59
Terminal value697,250.59 / (0.12 - 0.025) = 7,339,479.92
Discounted back 5 years4,164,618.01
Results
  Present value of the forecast years   2,078,297.37
  Present value of the terminal value   4,164,618.01
  Total discounted cash flow value      6,242,915.38
  Terminal value share of the total     66.7%
  Value per share                       6.24
Runs locally in your browser

About the DCF Calculator

A discounted cash flow model says a business is worth the cash it will produce, with each future year worth less than the one before it. The tool projects the first year figure forward at a growth rate, discounts each year back at your chosen rate, then adds a terminal value for everything beyond the forecast window. A 500,000 first year cash flow growing 8 percent, discounted at 12 percent over five years with 2.5 percent terminal growth, values the business at 6,242,915.38.

The year by year table is printed rather than summarised, showing the cash flow, the discount factor and the present value for every year, which makes it easy to move the model into a spreadsheet later. The terminal value uses the perpetuity growth method, taking the final year cash flow, growing it once more and dividing by the discount rate minus terminal growth. Terminal growth must stay below the discount rate or the sum becomes infinite, and the tool blocks that case with an explanation.

The results line worth staring at is the terminal value share of the total. In the default example it is 66.7 percent, which is normal and also the reason DCF answers move so much when assumptions change: two thirds of the value depends on a number describing the distant future. Enter a share count to get a per share figure. The discount rate itself usually comes from the Cost of Equity Calculator, and a sanity check against peers comes from the EBITDA Multiple Calculator.

How to use

  1. Enter the year 1 free cash flow, the cash left after operating costs and capital spending.
  2. Set the growth rate during the forecast and how many years the forecast covers.
  3. Enter a discount rate, usually the cost of equity or the weighted average cost of capital.
  4. Set a terminal growth rate below the discount rate, then read the value and the terminal value share.

Common questions

What is the DCF formula?
Value = the sum of each year cash flow divided by (1 + discount rate) raised to that year, plus a terminal value discounted the same way.
How is terminal value calculated?
The perpetuity growth method: final year cash flow times one plus terminal growth, divided by the discount rate minus terminal growth, then discounted back to today.
Why must terminal growth be below the discount rate?
If cash grows at or above the rate used to discount it, the series never converges and the value is infinite. The tool stops and asks for a lower growth figure.
What terminal growth rate is reasonable?
Something at or below long run economic growth, commonly 2 to 3 percent. Higher figures assume the company outgrows the whole economy forever.