Free calculator
DCF Intrinsic Value Calculator
Project free cash flow, discount it back to today, add a terminal value, and turn the result into a value per share. The table shows every year so you can see exactly where the number comes from.
Intrinsic value per share
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Enter your assumptions to calculate.
- PV of forecast cash flows
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- Terminal value
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- PV of terminal value
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- Terminal share of value
- Enterprise value
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- Equity value
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- Upside vs current price
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- Buy below
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| Yr | FCF | Factor | PV |
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Figures in millions of dollars except the per share prices. A DCF is only as good as its assumptions, so change one input at a time and watch what moves.
What a DCF is doing
A business is worth the cash it hands to its owners, and a dollar that arrives in year seven is worth less than a dollar in hand. A discounted cash flow model makes both of those statements arithmetic. You forecast cash for a period you can think about, divide each year by the discount rate compounded, then bolt on a terminal value for everything after. The model is a structure for your assumptions rather than a source of truth, and its output changes fast when the inputs do.
PV of year t = FCF in year t / (1 + discount rate)^t
Terminal value = final year FCF x (1 + g) / (discount rate - g)
The worked example behind the defaults
The calculator loads with $1,200m of current free cash flow, 8% growth for five years then 4% for five more, a 2.5% terminal rate, a 9% discount rate, 500m shares, $200m of net cash and a $32.00 share price.
Year 1 FCF = 1,200 x 1.08 = 1,296.0, discounted: 1,296.0 / 1.09 = 1,189.0
Repeat that through year 10, where cash flow reaches $2,145.2m, and the ten discounted years add up to $10,824.7m. The terminal value picks up everything after:
TV = 2,145.2 x 1.025 / (0.09 - 0.025) = 33,828.1
PV of TV = 33,828.1 / 1.09^10 = 14,289.3
Enterprise value is $25,114.1m. Add $200m of net cash to get equity value of $25,314.1m, divide by 500m shares, and the intrinsic value is $50.63 a share. Against a $32.00 price that is 58.2% of upside, and a 25% margin of safety puts the buy-below price at $37.97.
Choosing the discount rate
The discount rate is the return you require for taking the risk. Professionals build it as a weighted average cost of capital, blending the cost of equity with the after tax cost of debt. A personal model can start from the yield on a ten year Treasury and add a premium for company risk, which the Treasury securities guide helps you locate. Move the rate from 9% to 10% on the default inputs and the per share value falls sharply, which is the same mechanism that pulls long duration growth stocks down when yields rise. How interest rates affect stocks covers that link in detail.
Where the model breaks
Cyclical businesses are the hardest case, because starting from a peak year builds the peak into every forecast year that follows. Companies with negative free cash flow have nothing to discount, so the model needs a turnaround assumption baked in before it works at all. Heavy share issuance quietly dilutes the per share answer, and large buybacks do the reverse, which stock buybacks explained covers. Check the cash flow statement against reported profit before trusting the starting number, using how to read an earnings report.
A DCF is one of several views. Cross check it against the multiples with the P/E and earnings yield calculator, read stock valuation basics for the ratios it complements, and fold both into the checklist in how to analyze a stock. Once you own the shares, the CAGR calculator tells you whether the thesis paid.
Frequently asked questions
What is a discounted cash flow model?
A DCF values a business as the sum of the cash it will produce for owners, with each future dollar reduced to what it is worth today. Cash arriving in ten years is worth less than cash arriving now, and the discount rate sets how much less.
What discount rate should I use?
Most analysts use the weighted average cost of capital, which blends the cost of equity and the after tax cost of debt. A simpler approach for a personal model is to use the return you require to bother owning the shares. Raising the rate lowers the value, so the input deserves a sensitivity check rather than one confident number.
Why must terminal growth be below the discount rate?
The terminal value formula divides by the difference between the two. If growth equals the discount rate the denominator is zero and the value is infinite, and if growth is higher the answer turns negative. A business cannot compound faster than the economy forever, so terminal growth is usually set near long run inflation or GDP growth.
What is a margin of safety?
It is a deliberate discount applied to your own estimate. If the model says a share is worth 50.63 and you use 25%, you would only buy below 37.97. The discount is there because the inputs are forecasts, and a wrong forecast hurts far less when you did not pay full value for it.
Why does the terminal value dominate the answer?
The terminal value covers every year after the explicit forecast, which is most of a company life. In the default example it is about 57% of enterprise value even after discounting. Small changes to the terminal growth rate therefore move the final number more than any single forecast year does.
Should I use free cash flow or net income?
Free cash flow, defined as operating cash flow minus capital expenditure, is the closer measure of what owners could actually take out. Net income includes non cash charges and ignores the cost of keeping the asset base running, so a capital heavy business looks better on earnings than it does on cash.