What the Discounted Cash Flow (DCF) Calculator does
This DCF calculator estimates what a business is worth today from the free cash flow it is expected to produce. You enter this year's free cash flow, two stages of growth, a discount rate and a terminal assumption - perpetual growth or an exit multiple - then net debt and the share count, and it returns the enterprise value, the equity value, the intrinsic value per share, the margin of safety against today's price and a sensitivity grid.
A discounted cash flow model is only as good as its assumptions, so the page shows every year's cash flow, discount factor and present value, how much of the answer comes from the terminal value, and how the result moves when the two most uncertain inputs change. Nothing is fetched and nothing you type leaves your browser.
How to use it
- Enter the latest annual free cash flow - operating cash flow minus capital expenditure - and choose the currency and the scale (millions, crore) your figures are in.
- Set stage 1 (the next few years, often 5) and its growth rate, then stage 2 (a slower fade, often another 5 years). Use 0 years for stage 2 if you want a single stage.
- Enter the discount rate - your required return, or the company's weighted average cost of capital - and pick a terminal method: perpetual growth (Gordon) or an exit multiple of final-year cash flow.
- Enter total debt, cash, shares outstanding (in the same scale as the amounts) and, if you want a margin of safety, the current share price.
- Read the value per share, then the warnings and the sensitivity grid: if a one-point change in the discount rate flips the conclusion, the conclusion was never solid.
Reading the results
Enterprise value is what the whole business's cash flows are worth today. Subtract net debt (debt minus cash) to get equity value - what belongs to shareholders - and divide by the share count for value per share.
Margin of safety is (value - price) / value. A positive figure means the price is below your estimate; a value investor might want 20-30% before acting, precisely because the estimate could be wrong by that much.
Terminal value share is the part of the enterprise value that comes from beyond the forecast. Above about 75% the valuation is mostly a bet on the long-run growth rate and the discount rate, so the grid matters more than the headline.
The implied multiple (for Gordon) and implied growth (for an exit multiple) translate one terminal method into the other. A Gordon assumption that implies 30x cash flow, or an exit multiple that implies 6% growth for ever, is a sign to revisit the inputs.
Worked example: a steady company with $500 million of free cash flow
Free cash flow is $500 million, growing 8% a year for five years and 4% for the next five. The discount rate is 9% and terminal growth 2.5%. Debt is $1,200 million, cash $300 million, so net debt is $900 million; there are 100 million shares at $85.
Year 1 cash flow is 500 x 1.08 = $540 million, worth 540 / 1.09 = $495.4 million today. By year 10 cash flow is $893.8 million. The ten present values add up to $4,510 million.
Terminal value at year 10 is 893.8 x 1.025 / (0.09 - 0.025) = $14,095 million, which is 14,095 / 1.09^10 = $5,954 million today - 57% of the enterprise value of $10,464 million.
Equity value is 10,464 - 900 = $9,564 million, or $95.64 a share. Against an $85 price the margin of safety is (95.64 - 85) / 95.64 = 11.1%. The grid shows the same company at $75 to $123 a share across discount rates of 8-10% and terminal growth of 1.5-3.5%, which is the honest range of the answer.
Formulas and scoring rules
- Forecast cash flow
FCF_t = FCF_(t-1) x (1 + g)g is the stage 1 growth rate for years 1 to n1 and the stage 2 rate after that.- Present value of a year
PV_t = FCF_t / (1 + r)^tEnd-of-year cash flows, annual compounding. The forecast is summed with the shared XtFin NPV function.- Terminal value - perpetual growth (Gordon)
TV_N = FCF_N x (1 + g_T) / (r - g_T)Only defined when g_T < r; the calculator refuses g_T >= r rather than showing a meaningless number.- Terminal value - exit multiple
TV_N = FCF_N x multiple- Enterprise and equity value
EV = sum(PV_t) + TV_N / (1 + r)^N; equity = EV - (debt - cash)- Value per share and margin of safety
value = equity / shares; margin = (value - price) / valueShown to two decimal places; nothing is rounded during the calculation.- Growth implied by an exit multiple
g = (TV x r - FCF_N) / (TV + FCF_N)The perpetual growth rate at which the Gordon formula gives the same terminal value.
Choosing the inputs
Free cash flow. Use free cash flow to the firm when you subtract net debt at the end, as this page does. A one-off year (a big asset sale, an unusual capital spend) makes a poor starting point; an average of recent years is often more representative.
Discount rate. It should reflect the risk of the cash flows. Analysts usually use the weighted average cost of capital; individual investors often use the return they could earn elsewhere with similar risk. Small, cyclical or heavily indebted businesses deserve a higher rate.
Terminal growth. Because it applies for ever, it should not exceed the long-run nominal growth of the economy the business operates in. Many analysts use something close to expected inflation plus a little real growth.
Why the sensitivity grid matters more than the headline
A DCF turns guesses about the future into a precise-looking number. The grid recomputes the value for discount rates one and two points either side of yours and for terminal growth half a point and one point either side (or exit multiples one and two turns either side). Cells where growth meets or exceeds the discount rate are marked n/a, because the perpetuity has no finite value there. If most of the grid sits above the price, the conclusion survives reasonable disagreement; if it straddles the price, it does not.
Limitations: what the result does not prove
- It is a model of your assumptions, not a forecast and not investment advice. The same company can be worth half or double depending on inputs that reasonable people disagree about.
- Cash flows are assumed to arrive at the end of each year and to grow smoothly. Lumpy capital spending, acquisitions, dilution from share-based pay and changes in working capital are not modelled unless you build them into the cash flow you enter.
- Net debt is taken at its book value today. Leases, pension deficits, minority interests and preferred shares may also belong in it; add them to debt if they apply.
- No market data is fetched. Prices, share counts and cash flows are whatever you enter, so check them against the latest annual report.
Privacy: where your data goes
Everything you paste, type or drop is processed in this browser tab. It is not uploaded, logged, stored or sent to analytics. Session recording and tag-manager scripts are switched off on this page.
Standards and sources
- CFA Institute - Free cash flow valuation (curriculum overview)
- U.S. SEC Investor.gov - Discounted cash flow (glossary)
- NYU Stern, Aswath Damodaran - valuation teaching pages and data
- U.S. SEC - EDGAR company filings (annual reports for cash flow, debt and shares)
Frequently asked questions
How do you calculate intrinsic value with a DCF?
Forecast free cash flow for a number of years, discount each year back at your required return, add the present value of a terminal value for everything after the forecast, subtract net debt and divide by the number of shares. This calculator does each step and shows the working year by year.
What discount rate should I use in a DCF?
Use the return you need for the risk you are taking. Analysts use the company's weighted average cost of capital; many individual investors use 8-12% for established companies and more for small or risky ones. The sensitivity grid shows how much the answer depends on that choice.
What is a reasonable terminal growth rate?
Something at or below the long-run nominal growth of the economy - often 2-3% for developed markets and somewhat higher for fast-growing economies such as India. It must be below the discount rate, or the Gordon formula gives no finite value.
Should I use perpetual growth or an exit multiple for terminal value?
Either is fine as long as it is consistent. Perpetual growth ties value to economics; an exit multiple ties it to how the market prices similar businesses today. The calculator shows the multiple implied by your growth rate and the growth implied by your multiple, so you can check one against the other.
Why is most of my DCF value in the terminal value?
Because a healthy business keeps producing cash long after a five- or ten-year forecast. It is normal for the terminal value to be half or more of the total, but above about 75% the valuation is mostly a bet on long-run growth and the discount rate, so lean on the sensitivity grid.
What is margin of safety in a DCF valuation?
It is how far below your estimate of value the current price sits, as a share of that value: (value - price) / value. An estimate of 100 and a price of 80 is a 20% margin of safety. It is a cushion against your own errors, not a promise of return.
Can I use this DCF calculator for Indian stocks?
Yes. Choose the rupee and crore, enter free cash flow, debt, cash and shares in crore from the annual report, and use a discount rate and terminal growth that reflect Indian interest rates and inflation. The arithmetic is the same in any currency.
Last reviewed by the A2Z.Tools team against the sources listed above.
