# DCF Calculator

Calculate enterprise value using the Discounted Cash Flow model. Project cash flows, estimate terminal value, and find present value. Free DCF calculator.

## What this calculates

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.

## Inputs

- **Initial Annual Cash Flow** ($) — min 0 — The current year's free cash flow.
- **Cash Flow Growth Rate** (%) — min -20, max 50 — The expected annual growth rate of cash flows during the projection period.
- **Discount Rate (WACC)** (%) — min 0.1, max 30 — The discount rate, typically the WACC.
- **Projection Period (Years)** — min 1, max 20 — How many years of explicit cash flow projections.
- **Terminal Growth Rate** (%) — min 0, max 5 — The perpetual growth rate after the projection period (usually 2-3%, near GDP growth).

## Outputs

- **PV of Projected Cash Flows** — formatted as currency — The present value of the explicitly projected cash flows.
- **Terminal Value** — formatted as currency — The estimated value of all cash flows beyond the projection period.
- **PV of Terminal Value** — formatted as currency — The terminal value discounted back to present value.
- **Total Enterprise Value** — formatted as currency — The sum of PV of projected cash flows and PV of terminal value.

## Details

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: 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.

## Frequently Asked Questions

**Q: What is a DCF valuation?**

A: A DCF (Discounted Cash Flow) valuation estimates the intrinsic value of a business or investment by projecting its future free cash flows and discounting them to present value using an appropriate discount rate (typically WACC). It is based on the principle that value today equals the present value of all future cash flows the asset will generate.

**Q: Why does terminal value dominate DCF valuations?**

A: Terminal value typically represents 60-80% of a DCF valuation because it captures all cash flows beyond the explicit projection period, extending into perpetuity. This is why the terminal growth rate assumption is so important: a seemingly small difference (2% vs 3%) can change the valuation by 20-30%. Always test sensitivity to this assumption.

**Q: What are the main criticisms of DCF?**

A: DCF models are highly sensitive to assumptions: small changes in growth rate, discount rate, or terminal growth can dramatically change the output. They require accurate long-term projections, which are inherently uncertain. The terminal value's outsized impact means the model is only as good as the perpetuity growth assumption. DCF works best for stable, cash-generating businesses and less well for early-stage companies with negative cash flows.

**Q: What discount rate should I use?**

A: For corporate valuations, use the Weighted Average Cost of Capital (WACC), which blends the cost of equity and after-tax cost of debt. Typical WACC ranges from 7-12% for established companies. For higher-risk investments (startups, emerging markets), use a higher discount rate (15-25%). The discount rate should reflect the riskiness of the specific cash flows being discounted.

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Source: https://vastcalc.com/calculators/finance/dcf
Category: Finance
Last updated: 2026-04-21