DCF Calculator
Calculate the Discounted Cash Flow (DCF) intrinsic value of a stock or business based on projected free cash flows and discount rate.
Formula
DCF = Σ [FCFₜ/(1+WACC)^t] + [FCF₁₀×(1+g)/(WACC-g)] / (1+WACC)^10
- Terminal value uses Gordon Growth Model: TV = FCF₁₀ × (1+g) / (WACC - g).
- WACC (Weighted Average Cost of Capital) is the discount rate for the firm's risks.
- DCF is highly sensitive to discount rate and terminal growth rate assumptions.
$100M FCF, 15% early growth, 10% WACC
Inputs
- Current Free Cash Flow: 100 $M
- Growth Rate (Years 1-5): 15 %/yr
- Growth Rate (Years 6-10): 8 %/yr
- Terminal Growth Rate: 3 %/yr
- Discount Rate (WACC): 10 %/yr
- Shares Outstanding (millions): 1000 M
Project cash flows over 10 years, discount back at 10% WACC, add terminal value.
Frequently asked questions
What is DCF analysis?
Discounted Cash Flow analysis values a business by projecting future cash flows and discounting them back to present value.
What should the discount rate be?
Typically the WACC (Weighted Average Cost of Capital) — usually 8–15% for most companies.
Why is DCF sensitive to assumptions?
Small changes in growth rate or discount rate compound over 10 years and dramatically change the terminal value.
What is the margin of safety?
Investors using DCF typically require a 30–50% discount to intrinsic value before buying to account for model uncertainty.