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Discounted Cash Flow (DCF) Calculator

Estimate a company enterprise and equity value using a multi-year discounted cash flow model with terminal value assumptions.

Formula Verified by Dr. Elizabeth Vance, PhD

Quick actions: Save inputs, view saved runs, print, share, or export results

Saved Runs

Inputs

Operating Projections

Current Revenue ($)$

Revenue Growth Rate (%)%

EBITDA Margin (%)%

Tax Rate (%)%

CapEx as % of Revenue%

Change in NWC as % of Rev%

Valuation & Capital Structure

WACC Discount Rate (%)%

Perpetual Growth Rate (%)%

Forecast Period (Years)

Net Debt ($)$

Shares Outstanding

Results

Implied Share Price

$27.59

Equity Value$27,587,237

Enterprise Value$35,587,237

PV of Cash Flows$8,997,318

PV of Terminal Value$26,589,919

Tip

Valuation models change as assumptions shift. Save this page to rerun enterprise value calculations when discount rates, cash flow growth, or net debt positions are adjusted.

Formula

DCF Enterprise Value formula

EV = \sum_{t=1}^n \frac{FCF_t}{(1 + WACC)^t} + \frac{TV}{(1 + WACC)^n}

Enterprise Value sums the present value of forecast cash flows and the terminal value.

Step by step

How the calculation works

1Enter current revenue, growth rate, and operating EBITDA margins to project cash flows.
2Specify capital spending, working capital shifts, and tax rate to obtain Free Cash Flows.
3Set WACC as the hurdle rate to discount cash flows, and perpetual growth rate for terminal value.
4Deduct net debt and divide by shares outstanding to find the fair implied share price.

Related guides

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Guide

Business Valuation Methods: A Practical Owner Guide

Compare market, income, and asset valuation methods, normalize revenue and profit, and use multiples as a planning range rather than a formal appraisal.

Guide

ROI Calculation: Formula, Annualized Return, and Examples

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How to understand and use this calculator

How to Use This Calculator

Enter current-year revenue, an annual growth rate, operating (EBIT) margin, tax rate, capital expenditure and depreciation as a percent of revenue, the change in net working capital as a percent of revenue, your discount rate (WACC), terminal growth rate, net debt, and diluted shares outstanding.

The calculator projects five years of unlevered free cash flow, discounts each year back to the present at your WACC, adds a Gordon Growth terminal value for everything beyond year five, and bridges the resulting enterprise value down to an implied per-share price.

Worked Example: $10M Revenue, 10% Growth, 9.5% WACC

Year-0 revenue $10,000,000, 10% annual revenue growth for 5 years, 25% operating margin, 21% tax rate, capex and depreciation both 5% of revenue, net working capital change 2% of revenue, WACC 9.5%, terminal growth 2.5%, net debt $8,000,000, 1,000,000 diluted shares outstanding.

Sum of the present value of the five projected years of free cash flow: ≈ $8,997,318.

Terminal value (Gordon Growth, applied to year-5 cash flow): ≈ $41,858,880, with a present value of ≈ $26,589,919.

Enterprise value: ≈ $8,997,318 + $26,589,919 ≈ $35,587,237 — notice the terminal value alone makes up roughly 75% of total enterprise value, which is typical for a DCF and a reminder of how sensitive these models are to terminal assumptions.

Equity value (subtracting net debt): $35,587,237 − $8,000,000 ≈ $27,587,237.

Implied share price: $27,587,237 ÷ 1,000,000 shares ≈ $27.59.

Introduction to Discounted Cash Flow (DCF) Analysis

Discounted Cash Flow (DCF) analysis is a fundamental valuation methodology based on the principle that the value of a business is equal to the present value of its expected future cash flows.

Unlike market-based valuations such as trading multiples (e.g., P/E or EV/EBITDA), a DCF is an intrinsic valuation model. It allows analysts to project a company's operations through an explicit forecast period (typically 5 to 10 years) and discount those cash flows back to the present using an appropriate discount rate, representing the risk of the cash flows.

Unlevered Free Cash Flow (FCF) Formula

Unlevered Free Cash Flow (FCFF) represents the cash available to all capital providers—both debt and equity holders—after operating expenses, taxes, and capital investments have been met.

The mathematical formula for Unlevered Free Cash Flow is:

FCF = EBIT × (1 - t) + D A - CapEx - Δ NWC

Where:

* EBIT is earnings before interest and taxes (operating income).

* t is the marginal corporate tax rate.

* D A is non-cash depreciation and amortization expenses.

* CapEx is capital expenditures (reinvestment in fixed assets).

* Δ NWC is the change in net working capital (current assets minus current liabilities).

Discounting Cash Flows using WACC

To determine the present value of future cash flows, they must be discounted by a rate that reflects the cost of capital. The Weighted Average Cost of Capital (WACC) is used as the discount rate for unlevered free cash flows.

The formula for discounting cash flow in year i is:

PV of FCF_i = FCF_i/((1 + WACC)^i)

WACC blends the cost of equity (typically calculated using the Capital Asset Pricing Model, CAPM) and the after-tax cost of debt, weighted by their respective proportions in the company's target capital structure.

Estimating Terminal Value (Gordon Growth vs. Exit Multiple)

Since a company is assumed to operate indefinitely, cash flows beyond the explicit forecast period must be captured in a single figure known as Terminal Value (TV). Two methods are standard:

Gordon Growth Method: Assumes cash flows grow at a stable, long-term perpetual growth rate (typically matching long-term inflation or GDP growth, around 2% to 3%):

TV = (FCF_n × (1 + g))/(WACC - g)

Where FCF_n is the cash flow of the final projected year, and g is the perpetual growth rate.

Exit Multiple Method: Assumes the business is sold at the end of the forecast period at an implied market multiple, such as EV/EBITDA. The terminal value is calculated as:

TV = EBITDA_n × Exit Multiple

Enterprise Value to Implied Share Price Bridge

Once the present value of projected cash flows and the terminal value are summed, we obtain Enterprise Value (EV). To determine the value available to equity holders (Equity Value), we bridge the two figures using net debt:

Equity Value = Enterprise Value - Debt + Cash - Minority Interest - Preferred Stock

The implied share price is then calculated by dividing the Equity Value by the diluted shares outstanding:

Implied Share Price = (Equity Value)/(Diluted Shares Outstanding)

Related Calculators

If this valuation is feeding into a leveraged buyout, model the debt structure and exit returns with the LBO model, or if it's for an acquirer evaluating a deal, check the earnings impact with the M A accretion/dilution calculator.

Related concepts

WACC

Weighted Average Cost of Capital, reflecting the weighted cost of equity and debt.

Gordon Growth

A model that values a company based on a constant rate of perpetual dividend or cash flow growth.

Enterprise Value

The total value of a company's operations, representing the theoretical takeover cost.

Frequently Asked Questions

What is the main advantage of a DCF model?+

The main advantage is that it focuses on intrinsic value based on a company's ability to generate cash flow, making it less susceptible to short-term stock market fluctuations or irrational competitor pricing.

Why do we use unlevered free cash flows in a DCF?+

Unlevered free cash flow represents the cash generated before accounting for interest payments, showing the performance of the core business operations. This allows us to value the firm independently of its capital structure.

What is a normal perpetual growth rate to use?+

Typically, the perpetual growth rate is set between 2% and 3%, which aligns with long-term Gross Domestic Product (GDP) growth and inflation. Setting it higher than GDP growth implies the company will eventually grow larger than the entire economy.

How does WACC impact the DCF valuation?+

WACC has an inverse relationship with valuation. A higher WACC (representing higher risk) discounts future cash flows more aggressively, resulting in a lower Enterprise Value. A lower WACC yields a higher valuation.

What is the difference between unlevered and levered cash flow?+

Unlevered cash flow is cash flow before interest payments (available to both debt and equity holders). Levered cash flow is cash flow after interest payments and debt paydowns, representing the cash available only to equity holders.

What is a sensitivity table in a DCF?+

A sensitivity table shows how the implied share price changes when two key variables (typically WACC and perpetual growth rate) are adjusted. It helps identify the range of plausible valuations.

What is the mid-year convention in a DCF?+

The mid-year convention assumes cash flows are received evenly throughout the year (represented as year 0.5, 1.5, etc.) rather than all at the end of the year (year 1.0, 2.0). This increases the present value of cash flows since they are received earlier.

How do you calculate the discount factor?+

The discount factor for year t is calculated as 1 / (1 + WACC)^t. Multiplying the projected cash flow by this factor yields its present value.

What happens if WACC is lower than the perpetual growth rate?+

If WACC is less than or equal to the perpetual growth rate, the Gordon Growth formula denominator becomes zero or negative, resulting in an infinite or mathematically invalid valuation. WACC must always be greater than the perpetual growth rate.

How is net debt calculated?+

Net debt is calculated as total debt (both short-term and long-term interest-bearing debt) minus cash and cash equivalents.

How the calculation works

1Enter current revenue, growth rate, and operating EBITDA margins to project cash flows.

2Specify capital spending, working capital shifts, and tax rate to obtain Free Cash Flows.

3Set WACC as the hurdle rate to discount cash flows, and perpetual growth rate for terminal value.

4Deduct net debt and divide by shares outstanding to find the fair implied share price.

How to understand and use this calculator

How to Use This Calculator

Worked Example: $10M Revenue, 10% Growth, 9.5% WACC

Sum of the present value of the five projected years of free cash flow: ≈ $8,997,318.

Terminal value (Gordon Growth, applied to year-5 cash flow): ≈ $41,858,880, with a present value of ≈ $26,589,919.

Equity value (subtracting net debt): $35,587,237 − $8,000,000 ≈ $27,587,237.

Implied share price: $27,587,237 ÷ 1,000,000 shares ≈ $27.59.

Introduction to Discounted Cash Flow (DCF) Analysis

Discounted Cash Flow (DCF) analysis is a fundamental valuation methodology based on the principle that the value of a business is equal to the present value of its expected future cash flows.

Unlevered Free Cash Flow (FCF) Formula

Unlevered Free Cash Flow (FCFF) represents the cash available to all capital providers—both debt and equity holders—after operating expenses, taxes, and capital investments have been met.

The mathematical formula for Unlevered Free Cash Flow is:

FCF = EBIT × (1 - t) + D A - CapEx - Δ NWC

Where:

* EBIT is earnings before interest and taxes (operating income).

* t is the marginal corporate tax rate.

* D A is non-cash depreciation and amortization expenses.

* CapEx is capital expenditures (reinvestment in fixed assets).

* Δ NWC is the change in net working capital (current assets minus current liabilities).

Discounting Cash Flows using WACC

The formula for discounting cash flow in year i is:

PV of FCF_i = FCF_i/((1 + WACC)^i)

Estimating Terminal Value (Gordon Growth vs. Exit Multiple)

Since a company is assumed to operate indefinitely, cash flows beyond the explicit forecast period must be captured in a single figure known as Terminal Value (TV). Two methods are standard:

Gordon Growth Method: Assumes cash flows grow at a stable, long-term perpetual growth rate (typically matching long-term inflation or GDP growth, around 2% to 3%):

TV = (FCF_n × (1 + g))/(WACC - g)

Where FCF_n is the cash flow of the final projected year, and g is the perpetual growth rate.

Exit Multiple Method: Assumes the business is sold at the end of the forecast period at an implied market multiple, such as EV/EBITDA. The terminal value is calculated as:

TV = EBITDA_n × Exit Multiple

Enterprise Value to Implied Share Price Bridge

Equity Value = Enterprise Value - Debt + Cash - Minority Interest - Preferred Stock

The implied share price is then calculated by dividing the Equity Value by the diluted shares outstanding:

Implied Share Price = (Equity Value)/(Diluted Shares Outstanding)

Related Calculators

Related concepts

WACC

Weighted Average Cost of Capital, reflecting the weighted cost of equity and debt.

Gordon Growth

A model that values a company based on a constant rate of perpetual dividend or cash flow growth.

Enterprise Value

The total value of a company's operations, representing the theoretical takeover cost.

Frequently Asked Questions

What is the main advantage of a DCF model?+

Why do we use unlevered free cash flows in a DCF?+

What is a normal perpetual growth rate to use?+

How does WACC impact the DCF valuation?+

What is the difference between unlevered and levered cash flow?+

What is a sensitivity table in a DCF?+

A sensitivity table shows how the implied share price changes when two key variables (typically WACC and perpetual growth rate) are adjusted. It helps identify the range of plausible valuations.

What is the mid-year convention in a DCF?+

How do you calculate the discount factor?+

The discount factor for year t is calculated as 1 / (1 + WACC)^t. Multiplying the projected cash flow by this factor yields its present value.

What happens if WACC is lower than the perpetual growth rate?+

How is net debt calculated?+

Net debt is calculated as total debt (both short-term and long-term interest-bearing debt) minus cash and cash equivalents.

Discounted Cash Flow (DCF) Calculator

Inputs

Operating Projections

Valuation & Capital Structure

Results

DCF Enterprise Value formula

How the calculation works

Learn more about this calculation

Business Valuation Methods: A Practical Owner Guide

ROI Calculation: Formula, Annualized Return, and Examples

Discounted Cash Flow (DCF) Calculator

Inputs

Operating Projections

Valuation & Capital Structure

Results

Key output metrics

Projected Free Cash Flows

Enterprise Value Breakdown

How to understand and use this calculator

How to Use This Calculator

Worked Example: $10M Revenue, 10% Growth, 9.5% WACC

Introduction to Discounted Cash Flow (DCF) Analysis

Unlevered Free Cash Flow (FCF) Formula

Discounting Cash Flows using WACC

Estimating Terminal Value (Gordon Growth vs. Exit Multiple)

Enterprise Value to Implied Share Price Bridge

Related Calculators

Related concepts

Frequently Asked Questions

DCF Enterprise Value formula

How the calculation works

Learn more about this calculation

Business Valuation Methods: A Practical Owner Guide

ROI Calculation: Formula, Annualized Return, and Examples

Key output metrics

Projected Free Cash Flows

Enterprise Value Breakdown

How to understand and use this calculator

How to Use This Calculator

Worked Example: $10M Revenue, 10% Growth, 9.5% WACC

Introduction to Discounted Cash Flow (DCF) Analysis

Unlevered Free Cash Flow (FCF) Formula

Discounting Cash Flows using WACC

Estimating Terminal Value (Gordon Growth vs. Exit Multiple)

Enterprise Value to Implied Share Price Bridge

Related Calculators

Related concepts

Frequently Asked Questions