Discounted Cash Flow Calculator (DCF)

The DCF model relies on the principle that the value of any asset is the present value of all the cash it will generate in the future. The total valuation is split into two primary components: the explicit growth period value and the terminal value. First, the growth value sums the discounted cash flows (such as Earnings Per Share or Free Cash Flow) over a projected number of years using the formula: Growth Value = EPS * [((1 + g) / (1 + r)) * (1 - ((1 + g) / (1 + r))^n)] / [1 - ((1 + g) / (1 + r))], where 'g' is the growth rate, 'r' is the discount rate, and 'n' is the number of forecast years. Second, the terminal value captures all cash flows beyond the forecast period using a perpetual growth rate and terminal duration. Adding these two calculated values yields the total DCF valuation.

Imagine you want to evaluate a stock with an initial Earnings Per Share (EPS) of $4.00. You project a growth rate (g) of 5% per year for the next 5 years, and you apply a discount rate (WACC) of 9%. Furthermore, you estimate a terminal growth rate of 2% for a terminal duration of 10 years. Plugging these figures into the growth value formula, the present value of the explicit 5-year growth period totals approximately $18.45 per share. Next, using the terminal value formula, the discounted value of the subsequent terminal period calculates to roughly $28.30 per share. Summing both components together (Growth Value + Terminal Value), the final DCF intrinsic value is $46.75 per share, giving you a clear benchmark against its current market price.

Always use conservative growth rates to avoid overvaluing the asset due to overly optimistic projections. Ensure that your discount rate (or WACC) accurately reflects the true risk profile and cost of capital for the specific industry or company you are analyzing. Finally, perform sensitivity analyses by tweaking your discount and terminal growth rates slightly to see how resilient your valuation target is.