Introduction
A Discounted Cash Flow (DCF) calculator helps you figure out what a business or investment is really worth today. The idea is simple: money you receive in the future is worth less than money you have right now. A DCF takes the cash a company is expected to earn in the future and discounts it back to today's value using a rate that reflects risk. This gives you a fair value estimate so you can decide if an investment is cheap, expensive, or priced just right. Investors, analysts, and business owners all use DCF analysis to make smarter decisions with their money.
Use this DCF calculator to quickly run your own valuation. Just plug in your expected cash flows, choose a discount rate, and set a growth rate. The tool shows what those future earnings are worth in today's dollars. This calculator makes it easy to see if the numbers add up for stocks, a small business, or a new project.
How to Use Our DCF Calculator
Enter a few key numbers about a company's finances and our DCF (Discounted Cash Flow) calculator will estimate the fair value of that investment today.
Free Cash Flow (FCF): Enter the company's most recent annual free cash flow in dollars. This is the cash the business generates after paying for its operations and capital expenses. You can find this number on the company's cash flow statement.
Growth Rate (%): Enter the rate at which you expect the company's free cash flow to grow each year. Look at past growth trends and future outlook to pick a reasonable percentage. For example, enter 10 for a 10% annual growth rate.
Discount Rate (%): Enter the rate of return you require on your investment. This is often based on the weighted average cost of capital (WACC) or your personal required return. A common range is between 8% and 12%. A higher discount rate means future cash flows are worth less today. You can use our WACC Calculator to estimate this rate based on a company's capital structure.
Terminal Growth Rate (%): Enter the long-term growth rate you expect the company to sustain forever after the projection period ends. This rate should be modest, typically between 2% and 4%, since no company can grow faster than the overall economy indefinitely.
Projection Period (Years): Enter the number of years you want to project future cash flows before applying the terminal value. Most analysts use a period of 5 to 10 years. A longer period gives more detail but also adds more uncertainty to the estimate.
Shares Outstanding: Enter the total number of shares the company currently has outstanding. This lets the calculator divide the total estimated value by the share count to give you a fair value per share. You can find this number on the company's balance sheet or financial summary page.
What Is a DCF (Discounted Cash Flow) Valuation?
A DCF valuation is a method used to figure out what a stock or business is truly worth based on the money it is expected to earn in the future. The core idea is simple: a dollar you receive today is worth more than a dollar you receive five years from now, because you could invest today's dollar and earn a return on it. DCF analysis takes all the cash a company is projected to generate over many years and "discounts" those future dollars back to what they are worth right now. The final number you get is called the intrinsic value: the fair price of a stock based on its actual earning power, not market hype or emotion. This concept is closely related to Net Present Value (NPV), which applies the same discounting logic to any series of cash flows.
How the Two-Stage DCF Model Works
This calculator uses a two-stage DCF model, which splits the future into two periods:
- Stage 1, Growth Stage: This covers the first several years (often 10) when a company is expected to grow its earnings at a higher rate. For example, a fast-growing tech company might increase its cash flow by 12–18% per year during this phase.
- Stage 2, Terminal Stage: After the high-growth period ends, a company typically settles into a slower, more stable growth rate. This is called the terminal stage. A rate of 2–5% per year is common and reflects the long-run pace of the overall economy.
For each year in both stages, the calculator projects the cash flow per share, then divides it by the discount factor to find its present value. All those present values are added together to arrive at the stock's intrinsic value.
Key Inputs Explained
Base Year Cash Flow / Share is the starting point for your projections. You can choose between Earnings Per Share (EPS), Free Cash Flow (FCF) per share, or the Adjusted Dividend per share, depending on the type of company you are analyzing. EPS works well for stable, profitable firms. FCF is better for companies that generate a lot of cash but reinvest heavily. Dividends are best suited for mature companies that regularly pay shareholders.
Discount Rate (WACC) stands for the Weighted Average Cost of Capital. It represents the minimum return an investor requires to justify the risk of owning the stock. A typical discount rate ranges from 8% to 12%. A higher discount rate means you are demanding a higher return, which lowers the calculated fair value. A lower rate raises it.
Growth Rate is how fast you expect the company's cash flow to increase each year during the growth stage. This is one of the most important inputs and should be based on the company's historical performance, industry trends, and competitive advantages.
Terminal Growth Rate is the slower, long-term growth rate applied in Stage 2. Setting this too high is a common mistake, since very few companies can sustain growth above 4 to 5% indefinitely.
Understanding the Results
The intrinsic value per share is what the DCF model says the stock is actually worth. If the intrinsic value is higher than the current stock price, the stock may be undervalued, meaning it could be a good buying opportunity. If the intrinsic value is lower than the current price, the stock may be overvalued, and you could be paying more than the company's cash flows justify.
The margin of safety shows the percentage difference between the intrinsic value and the current price. Many value investors, following the principles of Benjamin Graham and Warren Buffett, look for a margin of safety of at least 20–30% before buying a stock. This cushion protects you in case your growth estimates turn out to be too optimistic.
Why the Sensitivity Table Matters
No one can predict the future perfectly. The sensitivity analysis table shows how the fair value changes when you adjust the growth rate and discount rate by small amounts. This helps you see a range of possible outcomes instead of relying on a single number. If the stock looks undervalued across most combinations in the table, that gives you more confidence in the result. If the valuation swings wildly with small input changes, the estimate is less reliable.
Limitations to Keep in Mind
A DCF model is only as good as the assumptions you put into it. Small changes in the growth rate or discount rate can lead to big differences in the final value. DCF works best for companies with predictable, steady earnings, such as established businesses like Coca-Cola or Visa. It is less reliable for startups, cyclical companies, or firms with negative earnings. Always use DCF as one tool among many, and combine it with other analysis methods like price-to-earnings ratios, competitive research, and a clear understanding of the business before making investment decisions.