DCF Calculator

Discounted Cash Flow (DCF) analysis estimates the intrinsic value of an investment based on its expected future cash flows, discounted back to the present using a required rate of return (discount rate or WACC). It is used because a dollar received in the future is worth less than a dollar today due to the time value of money and risk. DCF is widely used for company valuation in M&A, IPO pricing, equity research, and capital budgeting decisions.

WACC (Weighted Average Cost of Capital) is the blended average cost of all capital sources (debt and equity), weighted by their proportions in the company's capital structure. It reflects the minimum return a company must earn to satisfy all capital providers. For public companies, WACC is typically estimated using the CAPM model for equity cost and the after-tax yield on debt. Typical WACC values range from 6%–15% for most industries. For private companies or simpler analysis, a hurdle rate (the minimum acceptable return) is often used instead.

Terminal value (TV) represents the present value of all cash flows beyond the explicit forecast period, assuming the business grows at a stable perpetual rate (terminal growth rate). It is calculated using the Gordon Growth Model: TV = last CF × (1 + terminal_g) / (discount_rate − terminal_g). Because businesses are assumed to exist perpetually, the terminal value often accounts for 60%–80% of the total enterprise value in a typical 5-year DCF. This is why the terminal growth rate assumption is so sensitive — small changes have a large impact on EV.

The terminal growth rate should reflect the long-run sustainable growth rate of the business in perpetuity. Common practice is to use the expected long-run GDP growth rate of the country where the business operates — typically 2%–3% for developed economies. Using a terminal growth rate higher than the economy's long-run growth implies the company will eventually grow larger than the entire economy, which is unrealistic. The discount rate must always exceed the terminal growth rate, or the Gordon Growth Model produces an infinite or negative result.

The initial cash flow is typically Free Cash Flow to Firm (FCFF) or Free Cash Flow to Equity (FCFE), representing the cash the business generates after operating expenses and capital expenditures. For a simple analysis, you can use net income, EBIT × (1 − tax rate), or operating cash flow as a starting proxy. The key is to use a normalized, recurring figure that represents the baseline cash generation level, not a one-time spike or trough.

The discount rate appears in the denominator of every present value calculation: PV = CF / (1+d)^n. Higher discount rates compress present values more aggressively, especially for cash flows far in the future. For the terminal value, the discount rate minus the terminal growth rate (d − terminal_g) is in the denominator of the Gordon formula — a small increase in d produces a large drop in TV. This mathematical sensitivity is why investors argue intensely over WACC assumptions in acquisition negotiations.

Yes, with adjustments. To value equity (stock price), you would use FCFE (Free Cash Flow to Equity) as the cash flow input and the cost of equity as the discount rate, giving you the total equity value. Divide by shares outstanding to get intrinsic value per share. Alternatively, use FCFF with WACC to get enterprise value, then subtract net debt and divide by shares to get equity value. This calculator provides the enterprise value step.

DCF is highly sensitive to assumptions — small changes in growth rate, WACC, or terminal growth rate can swing the valuation by 30%–50%. It requires reliable cash flow projections, which are difficult for early-stage companies, cyclical businesses, or industries undergoing disruption. It also ignores market sentiment, liquidity discounts, and control premiums. For this reason, DCF is usually used alongside relative valuation methods (P/E, EV/EBITDA multiples) to triangulate a fair value range rather than as a standalone answer.