DCF Calculator
Enter the years for which you have historical cash flow data. For example, if you enter 2020-2025, you'll be able to input cash flows for those 6 years.
Note: If you already have Free Cash Flow (FCF) values, you can skip the first table and directly enter FCF in the second table. Basic arithmetic operations (+, -, *, /) work inside the cells.
| Year | Future Cash Flow | Present Value | Terminal Value |
|---|---|---|---|
| Click "Generate All" to calculate future values | |||
Intrinsic Value Calculation
| Sum of Present Values | - |
| Cash & Cash Equivalent | |
| Total Debt | |
| Total Intrinsic Value | - |
| Number of Outstanding Shares | |
| Intrinsic Value Per Share | - |
| Margin of Safety (%) | |
| Buy Price (with Margin of Safety) | - |
Valuation Meter
Undervalued Fair
Value Strongly
Overvalued
DCF Calculator: How to Calculate Intrinsic Value
What is DCF (Discounted Cash Flow)?
A Discounted Cash Flow (DCF) is a valuation methodology used to estimate a company's intrinsic value by calculating the present value of its projected future cash flows. It determines the present value of projected future cash flows by applying a discount rate that accounts for:
- Time value of money
- Risk associated with future cash flows
- Cost of capital
The fundamental principle behind DCF is that a dollar today is worth more than a dollar in the future due to:
- Inflation
- Investment opportunities
- Risk and uncertainty
The DCF Formula
Present Value = Future Cash Flow / (1 + Discount Rate)^n
Where:
Key DCF Formulas
1. Present Value of Cash Flows
PV of FCF = FCFYear n / (1 + r)n
Where:
- FCFYear n = Free Cash Flow for year n
- r = Discount rate
- n = Year number
2. Terminal Value Formula
Terminal Value = FCFLast Year ร (1 + g) / (r - g)
Where:
- FCFLast Year = Last projected free cash flow
- g = Terminal growth rate
- r = Discount rate
3. Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + r)n
Where:
- r = Discount rate
- n = Total number of projected years
4. Total Intrinsic Value
Intrinsic Value = ฮฃ(PV of FCFs) + PV of Terminal Value + Cash - Debt
5. Price Per Share
Price Per Share = Intrinsic Value / Number of Shares Outstanding
Note: All projected cash flows are discounted to present value using the discount rate (r) to account for the time value of money and risk.
Purpose of DCF Analysis
DCF analysis helps investors:
- Determine if a stock is overvalued or undervalued
- Make informed investment decisions
- Calculate a fair purchase price for a stock
- Compare different investment opportunities
- Understand the key value drivers of a business
How to Use This DCF Calculator
Start Year and End Year Input
Enter the years that you want to input cash flow for. For example:
- If input start year 2020 and end year 2025
- Table will be generated to input cash flows for 2020, 2021, 2022, 2023, 2024, 2025 years
1. Historical Data Entry (2020-2025)
The first table shows historical data and is calculated as follows:
- Operating Cash Flow (OCF): Direct input from financial statements
- Capital Expenditures (CapEx): Direct input from financial statements
- Free Cash Flow (FCF): Automatically calculated as OCF - CapEx
- Growth Rate: Calculated year-over-year as: ((Current Year FCF - Previous Year FCF) / Previous Year FCF) ร 100
- Average Growth Rate: Mean of all historical growth rates
2. Growth Parameters Setup
Example input and results:
This will generate cash flows for 10 future years:
- First five years will grow at 15% annually
- Next 5 years will grow at 10% annually
Note: If you want to use single growth rate, enter values for Stage 1 only
The calculator uses a two-stage growth model for future projections.
Stage 1 (High Growth Phase)
If you enter:
- Stage 1 Years: 5
- Stage 1 Growth Rate: 15%
Then:
- Years 2026-2030 cash flows will grow at 15% annually
- Each year's FCF = Previous Year FCF ร (1 + 0.15)
Stage 2 (Transition Phase)
If you enter:
Then:
- Years 2031-2035 cash flows will grow at 10% annually
- Each year's FCF = Previous Year FCF ร (1 + 0.10)
Additional Parameters
- Terminal Growth Rate (%): Long-term sustainable growth rate (usually 2-3%)
- Discount Rate (%): Required rate of return (typically 8-12%)
Example Calculation
If your last historical FCF (2025) is $1,000:
Stage 1 (15% growth):
- 2026 FCF = $1,000 ร (1 + 0.15) = $1,150
- 2027 FCF = $1,150 ร (1 + 0.15) = $1,322.50
- Present Value for 2026 (with 10% discount rate) = $1,150 / (1 + 0.10)^1 = $1,045.45
Tips for Accurate Valuation
- Use conservative growth rates: Better to underestimate than overestimate
- Consider industry averages: Terminal growth should align with sector norms
- Adjust discount rate: Based on company-specific risk factors
- Apply margin of safety: Typically 20-30% below intrinsic value
- Cross-reference: Compare results with industry multiples
Common Pitfalls to Avoid
- Overestimating growth: Be realistic about long-term sustainability
- Economic cycles: Consider industry and market cycles
- Company risks: Factor in company-specific challenges
- Over-reliance: Don't use DCF as the only valuation method
- Regular updates: Revise calculations as new data becomes available
DCF Calculator: Frequently Asked Questions (FAQ)
1. What is a DCF Calculator?
Q: What does the DCF Calculator do?
A: The DCF (Discounted Cash Flow) Calculator helps you estimate the intrinsic value of a company by projecting its future cash flows and discounting them back to their present value. It's a widely used valuation method in finance.
Q: Why should I use a DCF Calculator?
A: The DCF Calculator helps you determine whether a stock is overvalued or undervalued, allowing you to make informed investment decisions based on the company's fundamentals.
2. How to Use the DCF Calculator
Q: What inputs do I need?
A: You need:
- Historical Operating Cash Flow (OCF) and Capital Expenditures (CapEx)
- Growth rates for future cash flows (Stage 1 and Stage 2)
- Terminal growth rate (long-term sustainable growth)
- Discount rate (required rate of return)
- Cash, debt, and outstanding shares for equity valuation
Q: How do I enter historical data?
A: Enter the Operating Cash Flow (OCF) and Capital Expenditures (CapEx) for each year. The calculator automatically computes Free Cash Flow (FCF) as:
FCF = OCF โ CapEx
3. Growth Rates and Projections
Q: What is Stage 1 and Stage 2 growth?
A:
- Stage 1 Growth: Represents the high-growth phase (typically 5-10 years)
- Stage 2 Growth: Represents the transition phase with slower growth
Q: What is the Terminal Growth Rate?
A: The terminal growth rate is the long-term sustainable growth rate (usually 2-3%). It's used to calculate the company's value beyond the projection period.
4. Discount Rate
Q: How do I choose the Discount Rate?
A: Consider these factors:
- Risk-free rate (e.g., government bond yields)
- Company's risk profile (beta, industry risk)
- Your personal required return
Typical range: 8-12%
5. Troubleshooting and Limitations
Q: Why is my intrinsic value too high or low?
A: Common reasons include:
- Overestimating growth rates
- Using an inappropriate discount rate
- Incorrect historical data inputs
Q: What are the limitations of the DCF model?
A: The DCF model:
- Relies heavily on growth and discount rate assumptions
- Works best for stable companies with predictable cash flows
- May not suit early-stage or highly volatile companies
- Requires regular updates as new data becomes available