DCF Calculator
Estimate the intrinsic value of a business with our free DCF calculator. Enter the initial cash flow, growth rate, discount rate (WACC), projection period, and terminal growth rate to calculate the enterprise value based on discounted future cash flows.
The Discounted Cash Flow (DCF) model is considered the most theoretically sound approach to business valuation. It estimates a company's intrinsic value by projecting its future free cash flows and discounting them back to present value using the company's cost of capital (WACC). The logic is straightforward: a business is worth the sum of all future cash it will generate, adjusted for the time value of money.
A DCF model has two components: the explicit projection period (typically 5-10 years of individually projected cash flows) and the terminal value (capturing all cash flows beyond the projection period). Terminal value is usually calculated using the Gordon Growth Model: TV = Final Year CF x (1 + Terminal Growth Rate) / (WACC - Terminal Growth Rate). In most DCFs, terminal value accounts for 60-80% of total value, making the terminal growth rate assumption critically important.
The terminal growth rate should not exceed long-term GDP growth (typically 2-3%) because no company can grow faster than the economy forever. The discount rate should reflect the risk of the cash flows, with WACC being the standard choice for enterprise value. Small changes in these assumptions can dramatically change the output, so sensitivity analysis across a range of inputs is essential.