Discounted Cash Flow (DCF) Calculator

A DCF turns a forecast into a valuation by discounting expected future cash flows back to today. This calculator supports two approaches. FCFF mode values the firm from free cash flow to the firm, subtracts net debt through the cash and debt fields, and reports fair value per share. EPS mode discounts per-share earnings assumptions over a growth stage and a terminal stage for a faster intrinsic-value approximation.

This page is different from the NPV calculator, even though both use present value. NPV evaluates one project by subtracting an initial investment. DCF values a business or stock by combining forecast cash flows, terminal value, balance-sheet adjustments, and shares. The WACC calculator can help choose the FCFF discount rate, the CAPM calculator can help estimate equity-required return, and the enterprise value calculator gives a market-based comparison to the value estimated here.

How FCFF mode works

Choose FCFF when you have free cash flow forecasts for the business. The calculator reads each row’s year and cash flow, sorts the rows by year, and discounts every valid cash-flow row by its stated year. It then uses the last forecast cash flow to calculate a perpetual-growth terminal value. Cash is added because it belongs to equity holders after firm value is estimated. Debt is subtracted because lenders have a claim ahead of common equity. The result is divided by outstanding shares.

The FCFF mode requires the discount rate to be greater than the perpetual growth rate. If the growth rate is equal to or above the discount rate, the terminal value denominator is zero or negative, and the calculator marks the input invalid.

How EPS mode works

Choose EPS when you want a per-share shortcut. The calculator grows current EPS at the growth rate for the number of growth years, discounts each year’s EPS back to today, and then applies a second terminal EPS growth rate for the terminal years. It does not add cash, subtract debt, or calculate enterprise value in EPS mode. That makes the EPS path faster but less complete than an FCFF model.

Formula

For FCFF mode, forecast cash flows are discounted by year:

$\text{PV of forecast FCFF} = \sum_{t=1}^{n}\frac{\text{FCFF}_{t}}{\left(1 + \text{WACC}\right)^{t}}$

The terminal value is:

$\text{terminal value}_{n} = \frac{\text{FCFF}_{n}\cdot\left(1 + g\right)}{\text{WACC} - g}$

Firm value and per-share value are then:

$\text{firm value} = \text{PV of forecast FCFF} + \frac{\text{terminal value}_{n}}{\left(1 + \text{WACC}\right)^{n}}$

$\text{fair value per share} = \frac{\text{firm value} + \text{cash} - \text{debt}}{\text{shares}}$

Worked example using the default FCFF inputs

Assume FCFF mode with these defaults: cash flows of 90,000, 100,000, 108,000, 116,200, and 123,490 dollars in years 1 through 5; discount rate 9.94%; perpetual growth 4.48%; cash 25,000 dollars; debt 40,000 dollars; 10,000 shares; and market share price 18 dollars.

The calculator then compares 185.86 dollars with the 18 dollar market share price. The implied upside is about 932.54%. That large gap is not a prediction; it is the mechanical result of the default assumptions, especially the terminal growth rate being close to the discount rate. Reducing terminal growth or increasing WACC would lower the valuation sharply.

How DCF is used in valuation

DCF is a core intrinsic valuation method because it links value to cash-generation ability rather than only to market multiples. Analysts use it to value public companies, private businesses, acquisitions, and long-lived assets. It is especially useful when a company has changing growth, unusual margins, or a capital structure that makes simple price multiples hard to compare.

The model also forces assumptions into the open. Revenue growth, margins, reinvestment, taxes, working capital, discount rate, terminal growth, cash, debt, and share count all affect value. That transparency is useful in investment committees because people can debate the drivers rather than only the final price.

Limitations and tips

DCF precision is easy to overstate. A fair value of 185.86 dollars should not be read as a penny-accurate target. It is a scenario estimate. Build a range by changing discount rate, terminal growth, and cash-flow margins. Terminal value often dominates the answer, so a sensitivity table is more useful than one case.

Match cash flows and discount rate. FCFF should usually be discounted at WACC because the cash flows belong to all capital providers. Equity cash flows should use a cost of equity. Do not mix nominal cash flows with real rates, and do not assume perpetual growth above the economy’s sustainable growth without a strong reason.

Finally, check the balance-sheet bridge. If debt is missing, fair value per share may be overstated. If cash is restricted or needed for operations, adding all of it may be too generous. A DCF is a disciplined story about future cash, not a substitute for due diligence.

Sources

• Corporate Finance Institute, DCF Model Training Guide — structure of discounted cash-flow valuation and terminal value.
• Corporate Finance Institute, Discounted Cash Flow — DCF concepts and valuation use.
• Corporate Finance Institute, Valuation — overview of valuation approaches and intrinsic value.
• CFA Institute, Cost of Capital: Advanced Topics — discount-rate context for valuation models.