Calculate intrinsic value using discounted cash flow analysis. Includes terminal value, sensitivity tables, and step-by-step DCF formulas.
Enter projected free cash flows for each year. Use negative values for outflows.
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Discounted cash flow (DCF) analysis is a valuation method that estimates the intrinsic value of an investment based on its expected future cash flows. By discounting those cash flows back to the present using a required rate of return, DCF helps investors determine whether an asset is overvalued or undervalued. It is one of the most widely used approaches in corporate finance, investment banking, and equity research for valuing businesses, projects, and financial assets.
The DCF formula calculates the present value of all expected future cash flows, including a terminal value that captures value beyond the explicit forecast period. The discount rate (often the weighted average cost of capital, or WACC) reflects the time value of money and the risk associated with those cash flows. A higher discount rate reduces the present value, while higher expected cash flows increase it. Terminal value typically accounts for 60–80% of total DCF value, making its assumptions critically important.
DCF Formula
DCF = CF₁/(1+r)¹ + CF₂/(1+r)² + ... + CFₙ/(1+r)ⁿ + TV/(1+r)ⁿDCF provides a fundamental estimate of what an investment is actually worth, independent of market sentiment or comparable company multiples.
A dollar today is worth more than a dollar tomorrow. DCF properly discounts future cash flows to reflect their present-day value.
By calculating the intrinsic value of different investments, you can make apples-to-apples comparisons and allocate capital more effectively.
Our calculator includes both perpetuity growth and exit multiple methods for terminal value, giving you flexibility in how you model long-term value.
The built-in sensitivity matrix shows how DCF value changes with different discount rates and growth rates, helping you understand the range of possible outcomes.
Determine the intrinsic value of a stock by projecting future free cash flows per share and comparing the DCF value to the current market price.
Evaluate whether the asking price for a business is justified by its expected future earnings, factoring in growth rates and risk.
Analyze rental property investments by discounting projected rental income and estimating a terminal sale value.
Model pre-revenue or early-stage company valuations using projected cash flows and appropriate risk-adjusted discount rates.
Compare competing capital projects by calculating each project's DCF value and selecting the one that maximizes shareholder value.
To calculate DCF, project future cash flows for 5–10 years, choose a discount rate (typically WACC), calculate the present value of each cash flow using PV = CF/(1+r)^t, estimate a terminal value, discount it to present, and sum all present values. Our calculator automates this entire process.
Typical discount rates range from 6–12% for established companies and 15–25% for startups. The discount rate should reflect the risk level of the investment. Many analysts use the Weighted Average Cost of Capital (WACC), which accounts for the cost of both equity and debt financing.
Terminal value captures the value of a business beyond the explicit forecast period, assuming it continues operating indefinitely. Two common methods are the perpetuity growth model (assumes cash flows grow at a constant rate forever) and the exit multiple method (applies a valuation multiple to the final year's cash flow).
DCF (Discounted Cash Flow) calculates the total present value of expected future cash flows plus terminal value. NPV (Net Present Value) subtracts the initial investment from the DCF value. In essence, NPV = DCF Value - Initial Investment. Use our NPV calculator for project-specific investment analysis.
In Excel, use the NPV function: =NPV(rate, cash_flow_range) + terminal_value/(1+rate)^n. For terminal value, use the Gordon Growth Model: =last_CF*(1+g)/(r-g). Our online DCF calculator provides the same results with additional features like sensitivity analysis.
WACC (Weighted Average Cost of Capital) is the blended cost of a company's equity and debt financing. It serves as the discount rate in DCF analysis, reflecting the minimum return investors expect. WACC = (E/V × Re) + (D/V × Rd × (1-T)), where E is equity, D is debt, V is total value, Re is cost of equity, Rd is cost of debt, and T is the tax rate.
DCF is less reliable for early-stage startups with no cash flow history, cyclical businesses with highly volatile cash flows, financial companies where free cash flow is difficult to define, and distressed companies. In these cases, relative valuation methods (like comparable company analysis) may be more appropriate.
A reverse DCF calculates the implied growth rate the market is pricing into a stock or business. Instead of projecting cash flows to find intrinsic value, you input the current market price and solve for what growth rate would justify that price. This helps determine if market expectations are realistic.
Most DCF models project 5–10 years of explicit cash flows. The projection period should match the time horizon over which you can reasonably forecast. For stable businesses, 5 years is often sufficient. For high-growth companies, 7–10 years may capture the growth phase more accurately.
Terminal value typically accounts for 60–80% of total DCF value because it represents all cash flows beyond the explicit forecast period, which extends to infinity. This makes terminal value assumptions (growth rate, exit multiple) critically important. Always perform sensitivity analysis on these assumptions.