DCF calculator
Estimate what a stock is worth from the cash it will generate. Project free cash flow for ten years, add a terminal value, discount it all back to today and compare the result with the share price.
Undervalued · 15.5% margin of safety at $32.00
- Enterprise value
- $20.93B
- Equity value
- $18.93B
- PV of cash flows
- $9.02B
- PV of terminal value
- $11.91B
The terminal value is 57% of the enterprise value.
Pull five years of free cash flow, debt and cash for any company, then model the valuation with figures that update every quarter.
=SF("AAPL","cashflow","freeCashFlow","LY-4:LY")=SF("AAPL","balancesheet","totalDebt&cashAndCashEquivalents","LY")=SF("AAPL")| Year | Growth | Free cash flow | Discount factor | Present value |
|---|---|---|---|---|
| Year 1 | 8.0% | 1,080 | 0.917 | 991 |
| Year 2 | 8.0% | 1,166 | 0.842 | 982 |
| Year 3 | 8.0% | 1,260 | 0.772 | 973 |
| Year 4 | 8.0% | 1,360 | 0.708 | 964 |
| Year 5 | 8.0% | 1,469 | 0.650 | 955 |
| Year 6 | 4.0% | 1,528 | 0.596 | 911 |
| Year 7 | 4.0% | 1,589 | 0.547 | 869 |
| Year 8 | 4.0% | 1,653 | 0.502 | 829 |
| Year 9 | 4.0% | 1,719 | 0.460 | 791 |
| Year 10 | 4.0% | 1,788 | 0.422 | 755 |
| Terminal | 2.5% | 28,190 | 0.422 | 11,908 |
How the DCF valuation works
A discounted cash flow (DCF) model values a business as the sum of the cash it will produce, discounted back to today. Money in ten years is worth less than money now, so each year's cash flow is divided by (1 + discount rate) raised to the number of years away.
1. Project free cash flow
Starting from last year's free cash flow, the calculator grows it at your first rate for the first half of the projection and your second rate for the rest, so you can model growth that slows as the company matures.
2. Add a terminal value
Businesses don't stop after ten years. The terminal value uses the Gordon growth model, FCFₙ × (1 + g) / (r − g), to capture all the cash flows after the projection, assuming they grow at a steady rate forever. Keep terminal growth at or below long-run economic growth.
3. Get to a value per share
Discounting free cash flow to the firm gives enterprise value. Subtract net debt to get the value belonging to shareholders, then divide by shares outstanding. The margin of safety compares that intrinsic value with today's price.
Treat it as a range, not a number
A DCF is only as good as its inputs. Try a few discount rates and growth paths: if the stock only looks cheap under optimistic assumptions, that tells you something too. The WACC calculator helps you choose a discount rate.
Frequently asked questions
What discount rate should I use in a DCF?
When you discount free cash flow to the firm, as this calculator does, use the company's weighted average cost of capital (WACC). Many investors simply use a required return of 8–10% for large companies and more for smaller, riskier ones.
What is a reasonable terminal growth rate?
Most analysts use 2–3%, in line with long-run inflation or economic growth. The terminal growth rate must be lower than the discount rate, and small changes to it move the valuation a lot, so be conservative.
Why is most of the value in the terminal value?
For a growing company the cash flows after the projection period usually outweigh the first ten years. A terminal value above roughly 75% of the total means the result depends heavily on long-run assumptions, so test a few scenarios.
Can I use a DCF for banks or companies with negative cash flow?
It's harder. Banks' cash flows are mixed up with their lending, so dividend or earnings-based models suit them better. For companies with negative free cash flow today, project the path to positive cash flow year by year in a spreadsheet rather than using a single growth rate.
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