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DCF Calculator

A discounted cash flow model values something by what it will produce in future, discounted back to what that is worth today. It is the most principled valuation method and the easiest to make say whatever you want — so the assumptions matter more than the arithmetic.

Check the working

A worked example

A fixed case, for reference.

Take a current cash flow of ₹100, growing 5% a year for 5 years, discounted at 10%, with 2% perpetual growth after that.

  1. Project and discount year 1

    100×1.051.10=1051.10=95.45\frac{100 \times 1.05}{1.10} = \frac{105}{1.10} = 95.45

  2. Sum the five discounted years

    95.45+91.12+86.96+83.03+79.25=435.8195.45 + 91.12 + 86.96 + 83.03 + 79.25 = 435.81

  3. Terminal value at the end of year 5

    TV=127.63×1.020.10−0.02=1,627.26TV = \frac{127.63 \times 1.02}{0.10 - 0.02} = 1{,}627.26

  4. Discount the terminal value back

    1,627.26(1.10)5=1,627.261.61051=1,010.40\frac{1{,}627.26}{(1.10)^{5}} = \frac{1{,}627.26}{1.61051} = 1{,}010.40

  5. Add the two parts

    435.81+1,010.40=1,446.21435.81 + 1{,}010.40 = 1{,}446.21

The intrinsic value is about ₹1,446 — and roughly 70% of it comes from the terminal value, not the five years you actually projected. That is typical, and it is the single most important thing to understand about DCF: most of the answer rests on an assumption about the indefinite future.

The formula

PV=∑t=1nCF0(1+g)t(1+r)tPV = \sum_{t=1}^{n} \frac{CF_0 (1+g)^{t}}{(1+r)^{t}}

Present value of the explicitly projected years.

TV=CFn(1+gt)r−gtPV(TV)=TV(1+r)nTV = \frac{CF_n (1 + g_t)}{r - g_t} \qquad PV(TV) = \frac{TV}{(1+r)^{n}}

The Gordon growth terminal value, and its present value. This requires r to be strictly greater than the terminal growth rate.

What each symbol means

CF_0
the current annual cash flow
g
growth during the projection period
r
the discount rate, or required return
g_t
perpetual growth after the projection ends
n
the length of the projection in years
TV
the terminal value at the end of year n

What this assumes, and where it stops

Assumptions

  • Cash flows grow at a single constant rate throughout the projection period.
  • The discount rate reflects the return you require, and stays constant.
  • Growth continues forever at the terminal rate after the projection ends.
  • The terminal growth rate is strictly below the discount rate. If it is not, the formula diverges — nothing can grow faster than its discount rate forever — and this page reports that rather than showing an infinite value.

Limitations

  • DCF is extremely sensitive to its inputs. On the worked example above, raising the discount rate from 10% to 11% cuts the valuation by about 11%. Changes to terminal growth move it further still.
  • The terminal value usually dominates the result, so most of the answer depends on an assumption about a period nobody can forecast.
  • It does not model debt, cash on the balance sheet, share count, or dilution — this is a value for the cash flows themselves, not a per-share equity value.
  • Cash flows do not grow at a constant rate in reality. A single g is a convenience, not a description of any real business.
  • A valuation is not a price. The market can disagree with a well-built model for a very long time.

What this calculator does

  • Projects cash flows forward at a growth rate and discounts them back to a present value.
  • Adds a terminal value for everything beyond the projection period.
  • Shows what share of the valuation rests on the terminal assumption, which is usually most of it.

Common questions

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Different questions about the same money. These use the same conventions, so the numbers are comparable.

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