DCF Valuation Calculator Guide
A discounted cash flow (DCF) calculator estimates the present value of an investment based on projected future cash flows, discounted back at a rate reflecting the investment risk.
What Is a DCF Valuation?
Discounted Cash Flow (DCF) analysis values an asset by estimating its future cash flows and discounting them to present value using an appropriate discount rate. The core principle: a dollar received in the future is worth less than a dollar today due to time value of money and risk.
Key Inputs
Projected Cash Flows
Free cash flow projections for each year of the forecast period (typically 5–10 years). These should be based on revenue growth assumptions, margin expectations, capital expenditure plans, and working capital requirements.
Discount Rate (WACC)
The weighted average cost of capital reflects the blended cost of equity and debt financing, weighted by the capital structure. A higher WACC (indicating higher risk) reduces the present value of future cash flows.
Terminal Value
The value of all cash flows beyond the projection period. Calculated using either the perpetuity growth method (final year FCF × (1 + g) / (WACC – g)) or an exit multiple method (final year EBITDA × multiple). Terminal value often represents 60–80% of total DCF value.
Sensitivity Analysis
DCF results are highly sensitive to assumptions. Always run sensitivity tables varying the discount rate (±1–2%) and terminal growth rate (±0.5–1%). This produces a valuation range rather than a single point estimate, which is more useful for investment decisions.
Common Pitfalls
Overly optimistic growth projections, using an inappropriately low discount rate, double-counting growth in both the projection period and terminal value, and ignoring capital intensity. Always cross-check DCF results against comparable company multiples and precedent transactions.
Related Guides
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Compound Interest Calculator GuideA compound interest calculator shows how your investment grows over time when earned interest is reinvested to generate additional interest, illustrating the exponential effect of compounding.