Discounted Cash Flow Calculator (DCF)

How to use and interpret a DCF valuation

A discounted cash flow valuation estimates what future economic benefits are worth today. This tool supports two related approaches. The FCFF method discounts free cash flow available to both debt and equity providers, producing enterprise value before adjusting for cash and debt. The EPS method treats earnings per share as a simplified per-share cash-flow proxy and discounts two finite growth stages. Both methods are assumption-driven estimates rather than predictions or personalized investment advice.

FCFF inputs

Forecast FCFF is the cash generated by operations after tax and required reinvestment, but before payments to financing providers. Enter one amount for each explicit forecast year; use consistent currency units throughout. Adding years can improve visibility when operating performance is changing, but distant forecasts become less reliable. Negative cash flow can be entered in early years, although the final forecast year should normally be positive because it anchors terminal value. Company filings available through the SEC EDGAR search can provide historical cash-flow and balance-sheet inputs.

Cash is added and outstanding debt is deducted when enterprise value is converted to equity value. Include financing debt consistently and avoid double-counting operating liabilities already reflected in FCFF. Perpetual growth represents sustainable growth after the explicit forecast. A lower rate is usually more defensible for mature businesses; it must remain below WACC. Long-run economic data from FRED real GDP can help frame, but not determine, a terminal-growth assumption.

WACC is the blended required return for equity and after-tax debt capital. Raising WACC reduces every present value and usually has a large effect on terminal value. The rate should match the currency, inflation basis, and risk characteristics of the FCFF forecast. Sector-level cost-of-capital data from NYU Stern can be a useful benchmark, but company-specific capital structure and risk still matter. Outstanding shares should normally be the diluted count, not merely basic shares, and share price is optional; it is used only for the market comparison.

EPS inputs

Earnings per share is the starting annual amount. The simplified EPS approach assumes that this amount behaves like a distributable per-share cash flow, so it is less suitable when accounting earnings diverge materially from cash generation. Growth rate and growth-stage years define the first phase. Higher growth or a longer phase increases value, but both should be supported by margins, reinvestment capacity, and market size. Terminal growth rate and terminal-stage years define a second finite phase rather than an infinite perpetuity. The discount rate is applied to both phases; a higher required return lowers intrinsic value. The current share price provides the upside or downside comparison.

What the results mean

Fair value per share is equity value divided by diluted shares in FCFF mode, or total discounted per-share earnings in EPS mode. It is the central output, but it should be interpreted as a range rather than a precise target. Enterprise value is the present value of explicit FCFF plus terminal value. Equity value adjusts enterprise value for cash and debt. In EPS mode, the comparable result cards show the discounted growth-stage and terminal-stage values instead.

PV of terminal value shows how much of the valuation comes from periods beyond the explicit FCFF forecast, or from the second EPS stage. A high terminal share is common, but it also signals sensitivity to small changes in discount and growth assumptions. Market upside or downside compares modeled fair value with the entered share price: positive means fair value is above price; negative means it is below. A zero result may mean the two values match or that no market price was entered. Net debt equals debt minus cash, while forecast periods reports the number of modeled years.

Formula and model mechanics

For FCFF, each annual cash flow is divided by one plus WACC raised to the year number. Terminal value uses the Gordon growth relationship: final-year FCFF multiplied by one plus perpetual growth, divided by WACC minus perpetual growth. Terminal value is then discounted back from the final forecast year. The model adds the present values, subtracts net debt, and divides by shares. The general FCFF framework is also covered by the CFA Institute.

For EPS, the first stage is the present value of EPS growing at the initial rate for the selected years. The second stage starts from the final first-stage EPS and applies the slower terminal growth rate for a finite number of additional years. The projection table exposes every annual amount and discount factor, so the total can be traced without relying on a black-box formula.

Charts, tables, and sensitivity

The value-composition chart uses exactly the same present-value components as the results and Excel workbook. The legend and summary table show both dollars and percentages. The projection table shows where value is created and how discounting reduces distant cash flows. In FCFF mode, the sensitivity matrix changes WACC and perpetual growth around the current assumptions while holding other inputs constant. Large changes across nearby cells indicate that terminal assumptions dominate the model.

Common mistakes and practical checks

• Do not mix nominal cash flows with a real discount rate, or vice versa.
• Keep WACC above perpetual growth; equality causes division by zero and near-equality can create implausibly large values.
• Use normalized cash flow rather than an unusually strong or weak single year.
• Reconcile cash, debt, and diluted shares to the same reporting date.
• Test downside, base, and upside assumptions instead of relying on one scenario.
• Compare DCF outputs with market multiples, transaction evidence, and business quality before drawing conclusions.