A DCF calculator estimates what a stock is worth today from the cash it will produce in the future. Enter free cash flow, two growth rates, terminal growth and your discount rate. It returns intrinsic value per share, the upside or downside versus the price, a buy-below price with your margin of safety, and how much of the answer rests on the terminal value.
DCF calculator (intrinsic value)
Cash flow and growth
Balance sheet and price
Intrinsic value per share
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Warning
Year-by-year cash flows
| Year | Growth | Free cash flow | Discount factor | Present value |
|---|
The prefilled numbers describe an illustrative example company, not a real stock: $2.5 billion of free cash flow, $2 billion of net cash, 500 million shares and a $150 share price. It is the same example used in our reverse DCF calculator, so you can run both directions on one set of numbers.
How to use this DCF calculator
- Enter current free cash flow. Type trailing twelve month free cash flow in millions of dollars.
- Set two growth rates. Choose a free cash flow growth rate for years 1 to 5 and a usually lower one for years 6 to 10.
- Set terminal growth and your discount rate. Terminal growth is the rate assumed forever after year 10, usually 2% to 3%. The discount rate is the yearly return you require.
- Enter net cash, shares and price. Add net cash (negative for net debt) and diluted shares in millions, plus the current share price to compare against.
- Pick a margin of safety. Optionally enter a margin of safety percentage to get a buy-below price.
- Read the intrinsic value and check the terminal share. Compare intrinsic value per share with the price, and look at how much of the value comes from the terminal value.
Results update as you type. Open the year-by-year table to see exactly where the value comes from.
The DCF formula
A discounted cash flow model says a business is worth the cash it will generate, adjusted for the fact that money received later is worth less than money today. This calculator uses a two-stage model with a terminal value:
PV of forecast = Σ FCFt ÷ (1 + r)t
Terminal value = FCF10 × (1 + gT) ÷ (r − gT)
PV of terminal value = Terminal value ÷ (1 + r)10
Enterprise value = PV of forecast + PV of terminal value
Intrinsic value per share = (Enterprise value + Net cash) ÷ Shares
Buy-below price = Intrinsic value × (1 − Margin of safety)
The terminal value uses the Gordon growth formula. It captures everything after year ten in one number, which is why it often makes up most of the total. The result is an estimate of intrinsic value, not a price target.
Worked example
With the example inputs (12% growth for five years, 8% for the next five, 3% terminal growth and a 10% discount rate), free cash flow grows from $2.5 billion to about $6.5 billion in year ten. The ten years of cash flow are worth about $26.1 billion today. The terminal value is worth about $36.7 billion today. Add them for an enterprise value of about $62.9 billion, add $2 billion of net cash and divide by 500 million shares.
That gives an intrinsic value of about $129.75 per share, roughly 13.5% below the $150 price. With a 25% margin of safety, the buy-below price is about $97.31. The terminal value supplies about 58% of the total, which is normal for a growing company.
Now watch the sensitivity. Change only the discount rate to 9% and the value rises to about $152.88. Change it to 11% and it falls to about $112.49. One percentage point in either direction moves the answer by roughly 13% to 18%. That is why a single DCF number should never be treated as precise.
How to choose the inputs
Free cash flow
Use trailing twelve month free cash flow, which is operating cash flow minus capital expenditures. If the last year was unusual, use a normalized figure such as a three-year average. For companies that pay heavily in shares, consider subtracting stock-based compensation. Our guide to operating cash flow vs free cash flow explains the difference.
Growth rates
Anchor your first-stage growth to something real: the company's past free cash flow growth (use the CAGR calculator), its revenue growth, and the room left in its market. The second stage should usually be lower, because growth slows as companies get bigger. If you would struggle to explain why the business can grow faster than it has in the past, do not assume it will.
Terminal growth
Terminal growth lasts forever, so it must be modest. Use 2% to 3% for most businesses, roughly in line with long-run inflation and economic growth. It must also be lower than your discount rate, or the formula divides by zero or a negative number.
Discount rate
The discount rate is the return you require. Professionals often use the weighted average cost of capital. Many individual investors skip the theory and use a hurdle rate of 8% to 12%, raising it for businesses with more debt, more cyclical sales or less predictable cash flow.
Net cash, shares and margin of safety
Net cash is cash and investments minus debt. Use diluted shares so options and stock awards are counted (see dilution). The margin of safety is the discount you demand before buying, as protection against being wrong. Value investors commonly use 20% to 50%, with more for less predictable businesses.
Why the terminal value matters so much
For most growing companies, more than half of a DCF value comes from the years after the forecast. The calculator shows that share and warns you when it goes above 75%. A high share is not an error. It does mean the answer depends mostly on assumptions about a period nobody can see. When that happens, check the result against a reverse DCF and against simple multiples before trusting it.
Common mistakes
- False precision. A value of $129.75 is really a range. Run a low, middle and high case.
- Growth that never fades. Using 20% for all ten years and then 4% forever quietly assumes the company becomes enormous.
- A discount rate chosen to hit a number. Pick the rate before you look at the result.
- Mixing units. Free cash flow, net cash and shares all go in millions.
- Forgetting debt. A company with large net debt is worth less to shareholders than its enterprise value suggests.
- Using a DCF on the wrong company. Banks, insurers and early-stage companies with negative cash flow do not fit this model well.
Limitations
A DCF is garbage in, garbage out. The math is exact, but every input is a guess, and small guesses compound. The model assumes smooth growth, a constant discount rate and a steady share count, and real businesses have none of those. It also cannot tell you whether a company has a durable economic moat that makes the growth believable. Use it as a way to organize your thinking about a business, alongside the rest of your research on how to value a stock. Our guide to DCF vs reverse DCF covers when each approach works best.
Run a DCF on a real stock
Stock Simplifier fills in these inputs from real financial data (sourced from Fiscal.ai) for the stock you choose, so you only set the assumptions. Its forward DCF lets you value a company on free cash flow or earnings per share, pick a perpetuity growth terminal value or an exit multiple, use a single or split growth rate, and blend bear, base and bull cases by probability. A history view next to the inputs shows the company's past margins and multiples, so your assumptions have a reference point.
The DCF is part of the valuation tools on the Pro plan ($39.99 a month or $399 a year), along with Reverse DCF and TAM valuation. Pro includes a 7-day free trial. The Free plan does not include the DCF tools, but it gives you 5 years of financials on 10,000+ stocks, enough to pull free cash flow, cash, debt and shares for this calculator yourself.