DCF Calculator — Discounted Cash Flow
Estimate a stock’s intrinsic value by discounting projected free cash flows. Compare your fair value estimate to the current price to spot potential opportunities.
Rows = WACC, Columns = Terminal Growth Rate
| Year | Growth Rate | FCF | Discount Factor | PV of FCF | Cumulative PV |
|---|
How to Use This DCF Calculator
Start with the company’s most recent free cash flow — you’ll find this on the cash flow statement (or sites like Macrotrends, FinViz, or your brokerage’s fundamentals tab). Enter it in millions. Then set two growth phases: a higher rate for the next 5 years (the “explicit forecast”), and a slower rate for years 6–10 as growth normalizes.
The discount rate (WACC) is your required rate of return — it reflects the risk of the cash flows. For a large-cap US stock, 8–10% is typical. For a high-growth, unprofitable tech company, 12–15% might be more appropriate. The terminal growth rate is the perpetual growth rate after year 10 — keep this between 2–3% (roughly nominal GDP growth). Setting it above the discount rate will break the model.
Enter shares outstanding and net cash (cash minus total debt) to convert the enterprise value into a per-share fair value. Compare that to the current stock price to see if the market is offering a discount or a premium relative to your assumptions.
The DCF Formula
A DCF model discounts future cash flows back to today using the time value of money. A dollar received 10 years from now is worth less than a dollar today because of opportunity cost — you could invest that dollar elsewhere. The discount rate captures both the time value and the riskiness of those future cash flows.
The terminal value captures everything beyond your 10-year forecast. It typically represents 60–80% of the total enterprise value, which is why the terminal growth rate and exit multiple are the most sensitive inputs in any DCF.
Two-Stage Growth: Why It Matters
No company grows at 20% forever. A two-stage DCF lets you model a realistic trajectory: high growth during the competitive advantage period, then a fade to a sustainable rate as the business matures. This is closer to how companies actually behave — and it prevents the model from spitting out absurd valuations.
| Company Type | Yr 1–5 Growth | Yr 6–10 Growth | Terminal Rate | Typical WACC |
|---|---|---|---|---|
| Large-cap stable (e.g. KO, JNJ) | 4–6% | 3–4% | 2–2.5% | 7–9% |
| Mid-cap grower (e.g. SQ, CRWD) | 15–25% | 8–12% | 2.5–3% | 10–12% |
| High-growth tech (e.g. early AMZN) | 25–40% | 12–18% | 2.5–3% | 11–14% |
| Cyclical / value (e.g. CAT, F) | 3–8% | 2–5% | 2% | 8–10% |
A DCF output is only as good as its inputs — and every input is an estimate. Benjamin Graham’s “margin of safety” concept says you should only buy when the price is significantly below your intrinsic value estimate. A 20–30% margin of safety gives you a buffer for the assumptions you inevitably get wrong.
Terminal Value: Perpetuity Growth vs Exit Multiple
There are two standard approaches to estimate what the company is worth beyond your forecast period. Both should produce roughly similar results if your assumptions are consistent — if they diverge wildly, one of your inputs is off.
| Method | Formula | Best For | Watch Out For |
|---|---|---|---|
| Perpetuity Growth | FCF₁₁ / (WACC − g) | Stable, predictable businesses | Very sensitive to growth rate; even 0.5% change has huge impact |
| Exit Multiple | Year-10 FCF × EV/FCF multiple | Cross-checking; M&A-oriented analysis | Assumes current market multiples persist — may be cyclically inflated |
Most analysts run both and triangulate. If perpetuity growth gives you $200/share and exit multiple gives you $140/share, you know the terminal growth assumption is probably too aggressive.
What WACC Should I Use?
WACC (Weighted Average Cost of Capital) blends the cost of equity and cost of debt, weighted by the company’s capital structure. For a quick approximation when you don’t want to build a full WACC model:
| Risk Profile | Approximate WACC | Examples |
|---|---|---|
| Low risk (large-cap, stable earnings) | 7–9% | Apple, Microsoft, Procter & Gamble |
| Moderate risk (growing mid-cap) | 9–11% | Salesforce, Palo Alto Networks |
| High risk (small-cap, volatile, unprofitable) | 11–15% | Early-stage biotech, pre-profit SaaS |
| Emerging markets / speculative | 13–18% | Frontier market equities, crypto-adjacent |
The higher the uncertainty, the higher the discount rate should be. A higher WACC lowers the present value of future cash flows — which is exactly the right intuition: riskier cash flows are worth less today.
If the terminal growth rate equals or exceeds the discount rate, the Gordon Growth formula divides by zero (or a negative number), producing infinite or negative valuations. Keep the terminal rate at 2–3% — no company grows faster than the economy forever. If your model demands a higher terminal rate to justify the current price, that’s a red flag, not a feature.
Common DCF Mistakes to Avoid
A DCF is powerful but fragile. Small changes in assumptions produce large swings in output — that’s a feature, not a bug. It forces you to be explicit about what you’re betting on. But these are the mistakes that consistently wreck valuations:
| Mistake | Impact | Fix |
|---|---|---|
| Terminal growth > long-term GDP | Massively inflated fair value | Cap terminal growth at 2.5–3% |
| Using revenue instead of FCF | Ignores capital needs, overstates value | Always use free cash flow (or FCFF) |
| WACC too low for risky companies | Overpays for uncertain cash flows | Match WACC to actual risk profile |
| Ignoring share dilution | Overstates per-share value | Use diluted shares, not basic |
| No margin of safety | No buffer for inevitable errors | Require 20–30% discount to buy |
| Skipping sensitivity analysis | False precision in a single number | Run the sensitivity table on this calculator |
Related Tools
| Calculator | Use It For |
|---|---|
| Present Value Calculator | Discount any single future cash flow to today |
| Future Value Calculator | Project a lump sum forward at a given rate |
| Compound Interest Calculator | General compounding — savings, growth projections |
| ROI Calculator | Measure return on investment after the fact |
| DRIP Calculator | Model dividend reinvestment compounding |
| Rule of 72 Calculator | Quick doubling-time estimate for any growth rate |
FAQ
What is a DCF analysis?
DCF (Discounted Cash Flow) is a valuation method that estimates a company’s intrinsic value by projecting its future free cash flows and discounting them back to present value using a required rate of return (WACC). It’s the foundational valuation framework used by analysts, investment banks, and long-term investors to determine what a business is actually worth independent of market sentiment.
What free cash flow number should I use?
Use Free Cash Flow to the Firm (FCFF) or unlevered FCF — that’s operating cash flow minus capital expenditures. You can find this on any company’s cash flow statement or calculate it as EBIT × (1 − tax rate) + depreciation − CapEx − change in working capital. The trailing twelve months (TTM) figure is the standard starting point.
How do I determine the right discount rate?
The discount rate should reflect the riskiness of the company’s cash flows. Formally, it’s the WACC — a weighted blend of the cost of equity (via CAPM) and cost of debt. For a quick estimate, use 8–10% for stable large-caps, 10–12% for growth companies, and 12–15% for speculative or early-stage businesses. The key principle: riskier companies deserve higher discount rates, which reduce the present value of their future cash flows.
Why does terminal value dominate most DCF models?
Because the terminal value captures all cash flows from year 11 to infinity — which is a long time. It typically represents 60–80% of total enterprise value. This is why the terminal growth rate and exit multiple are the most sensitive inputs: small changes in either will swing the valuation dramatically. Always run a sensitivity analysis on these.
What terminal growth rate should I use?
2–3% for most companies. This should approximate long-term nominal GDP growth (real GDP + inflation). Using anything above 3.5% implies the company will grow faster than the entire economy forever, which isn’t realistic. The terminal growth rate must always be below the discount rate — otherwise the model breaks mathematically.
Perpetuity growth or exit multiple — which is better?
Neither is inherently better. Perpetuity growth is theoretically cleaner but very sensitive to small changes in the growth rate. Exit multiples are more intuitive but assume current market conditions persist. Best practice is to run both and see if they converge. Large divergence means one of your assumptions needs revisiting.
How accurate are DCF valuations?
A DCF gives you a defensible range, not a precise price target. The value of a DCF isn’t the single number it outputs — it’s the process of explicitly stating your assumptions about growth, risk, and duration. Run the sensitivity table to see how the fair value changes across different scenarios. If the stock is undervalued across most reasonable assumptions, that’s a stronger signal than any single point estimate.
Should I use basic or diluted shares outstanding?
Always use fully diluted shares outstanding. This accounts for stock options, warrants, and convertible securities that will eventually become common shares. Using basic shares overstates the per-share value — sometimes significantly for tech companies with heavy stock-based compensation. Check the 10-K or the company’s latest earnings report for the diluted count.
Key Takeaways
- A DCF is a structured way to think about value — the process of making explicit assumptions matters more than the exact output number.
- Terminal value typically drives 60–80% of the result — run the sensitivity table on WACC and terminal growth rate to see how much your output swings.
- Always apply a margin of safety — even the best model has estimation error. Buy at a 20–30% discount to your fair value estimate.
- Match the discount rate to the risk — 8% for Coca-Cola and 8% for a pre-revenue biotech are very different claims about certainty.
- Use two-stage growth — no company sustains high growth forever. Fade to a sustainable rate by years 6–10.
- Cross-check with multiples — if your DCF says $300/share but every comparable trades at 15x earnings, revisit your assumptions before assuming the market is wrong.