DCF Calculator
Value a business or investment using Discounted Cash Flow analysis — discount projected free cash flows and terminal value back to today's dollars.
Frequently Asked Questions
What is a DCF valuation and how does it work?
Discounted Cash Flow (DCF) valuation estimates a business's intrinsic value by projecting its future free cash flows, then discounting them back to today's value using the WACC. The logic: a dollar of cash flow in the future is worth less than a dollar today due to risk and opportunity cost.
What is terminal value and why is it so large?
Terminal value captures all cash flows beyond the explicit forecast period (typically 5–10 years), using the Gordon Growth Model: TV = Last FCF × (1 + g) ÷ (r − g). It typically represents 60–80% of total DCF value because most of a company's value lies in its long-run steady-state cash flows, not the near-term projections.
What discount rate should I use in a DCF?
Use the company's WACC as the discount rate — it reflects the blended cost of all capital (equity and debt). For a mature US company, WACC typically falls between 8–12%. Use a higher rate (15–25%) for early-stage or high-risk businesses. For personal investment decisions, use your required rate of return or opportunity cost.
How sensitive is DCF to assumptions?
Extremely sensitive. A 1% change in the discount rate or terminal growth rate can change the valuation by 20–40%. This is often called the "garbage in, garbage out" problem. Always run sensitivity analysis — calculate value at different growth and discount rate combinations — to understand the range of outcomes rather than relying on a single figure.
How do I cross-check a DCF valuation?
Always triangulate with comparable company multiples (EV/EBITDA, P/E, EV/Revenue) and precedent transaction data. If your DCF says a company is worth $50M but comparable companies trade at 8× EBITDA and this company has $3M EBITDA (implied value $24M), investigate the discrepancy. No single valuation method is definitive.