# DCF calculator (discounted cash flow valuation)

> Calculate enterprise value, equity value and value per share with a DCF: projected free cash flows plus a Gordon-growth terminal value.

Interactive version: https://www.calcopenly.com/finance/dcf-valuation-calculator
Subject: Finance calculators

A discounted cash flow (DCF) valuation prices a business as the present value of the free cash flow it will produce. Here this year's free cash flow grows at a constant rate through the projection years, each year is discounted at the discount rate (usually the WACC), and a terminal value covers every later year with the Gordon growth formula, TV = FCF_N × (1 + g_T) ÷ (r − g_T), discounted back from year N. Subtracting net debt gives equity value, and dividing by shares gives value per share.

With the defaults, 5,000,000 of free cash flow growing 8% a year for 5 years, a 10% discount rate and 2.5% terminal growth, the enterprise value is 86,012,011.42, of which the terminal value supplies 62,343,037.45, or 72%. After 10,000,000 of net debt, the equity is worth 76,012,011.42, or 7.60 a share across 10,000,000 shares.

Because the terminal value usually dominates, small changes in the discount rate or terminal growth move the result a long way. Terminal growth must stay below the discount rate.

## Inputs

- **Free cash flow this year**: The most recent annual free cash flow; year 1 is this grown once
- **Growth during projection**
- **Projection years**
- **Discount rate (WACC)**
- **Terminal growth rate**: Long-run growth after the projection; keep it at or below the risk-free rate
- **Net debt**: Debt minus cash; enter a negative number for net cash
- **Shares outstanding**

## Results

- Enterprise value — main result
- Equity value
- Value per share
- Present value of projected cash flows
- Terminal value (at end of projection)
- Present value of terminal value
- Share of value from terminal value

## Formula

$$
EV = \sum_{t=1}^{N} \frac{FCF_0(1+g)^t}{(1+r)^t} + \frac{1}{(1+r)^N}\cdot\frac{FCF_N(1+g_T)}{r - g_T}
$$

## Worked examples

### Default company

- Free cash flow this year: 5,000,000
- Growth during projection: 8%
- Projection years: 5 years
- Discount rate (WACC): 10%
- Terminal growth rate: 2.5%
- Net debt: 10,000,000
- Shares outstanding: 10,000,000
- **Enterprise value: 86,012,011.42**
- **Equity value: 76,012,011.42**
- **Value per share: 7.60**
- **Present value of terminal value: 62,343,037.45**
- Checked against: Python decimal (prec 50) summing FCF₀(1.08)^t/1.1^t for t = 1…5 plus the Gordon terminal value discounted 5 years

### FCF 100, 5% growth, 10% discount, 2% terminal

- Free cash flow this year: 100
- Growth during projection: 5%
- Projection years: 5 years
- Discount rate (WACC): 10%
- Terminal growth rate: 2%
- Net debt: 0
- **Enterprise value: 1,446.21**
- **Present value of projected cash flows: 435.81**
- **Terminal value (at end of projection): 1,627.26**
- **Share of value from terminal value: 69.9%**
- Checked against: Python decimal (prec 50): Σ PV = 435.812…, TV = 1627.259, EV = 1446.212

### Flat cash flow over one year equals FCF / r

- Free cash flow this year: 100
- Growth during projection: 0%
- Projection years: 1 year
- Discount rate (WACC): 10%
- Terminal growth rate: 0%
- Net debt: 0
- **Enterprise value: 1,000.00**
- **Present value of projected cash flows: 90.91**
- Checked against: A level perpetuity is worth FCF / r = 100 / 0.10 = 1000 (Gordon model with g = 0)

### Same growth before and after equals one Gordon perpetuity

- Free cash flow this year: 100
- Growth during projection: 3%
- Projection years: 5 years
- Discount rate (WACC): 8%
- Terminal growth rate: 3%
- Net debt: 0
- **Enterprise value: 2,060.00**
- Checked against: When g = g_T the whole stream is a growing perpetuity: FCF₁ / (r − g) = 103 / 0.05 = 2060

## Questions

### How do you calculate a DCF valuation?

Project free cash flow, discount each year at the discount rate, add the discounted terminal value, then subtract net debt. With the defaults, the five projected cash flows are worth 23,668,973.97 today and the terminal value 62,343,037.45, so the enterprise value is 86,012,011.42; less 10,000,000 of net debt, equity is 76,012,011.42.

### How is terminal value calculated?

With the Gordon growth formula: next year's cash flow divided by the discount rate minus the long-run growth rate. The default year-5 cash flow is 5,000,000 × 1.08^5 = 7,346,640.38, so TV = 7,346,640.38 × 1.025 ÷ (0.10 − 0.025) = 100,404,085.25 at the end of year 5, or 62,343,037.45 in today's money.

### What terminal growth rate should I use?

A rate no higher than the risk-free rate used in the valuation, as Aswath Damodaran of NYU Stern advises, because no business can outgrow the whole economy forever. The choice matters: with the other defaults fixed, terminal growth of 2% gives an enterprise value of 81,830,466.23, 2.5% gives 86,012,011.42 and 3% gives 90,790,920.21.

### What discount rate should I use in a DCF?

For free cash flow to the firm, the weighted average cost of capital (WACC), which blends the required return on equity and the after-tax cost of debt. The result is sensitive to it: with the other defaults fixed, a 9% rate values the business at 99,615,400.68, 10% at 86,012,011.42 and 11% at 75,619,499.32.

### What is the difference between enterprise value and equity value?

Enterprise value is what the whole business is worth to all its capital providers; equity value is what is left for shareholders after net debt (debt minus cash). The default enterprise value of 86,012,011.42 minus 10,000,000 of net debt leaves 76,012,011.42 of equity. With net cash, enter net debt as a negative number and equity exceeds enterprise value.

### How accurate is the DCF calculator?

Accuracy depends on your inputs and the method's assumptions. Decimal arithmetic uses 50 significant digits, but estimates, numerical methods and source data can be less precise; the displayed rounding does not remove those limits. It is checked against 4 worked examples whose answers come from independent sources; for example, “Default company” is checked against Python decimal (prec 50) summing FCF₀(1.08)^t/1.1^t for t = 1…5 plus the Gordon terminal value discounted 5 years.

### Where does the method come from?

Damodaran — Valuation: discounted cash flow models (NYU Stern); CFA Institute — Free cash flow valuation (CFA Program curriculum, Equity valuation).

## Sources

- [Damodaran — Valuation: discounted cash flow models (NYU Stern)](https://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/dcf.html)
- CFA Institute — Free cash flow valuation (CFA Program curriculum, Equity valuation)

_Note: financial information, not professional advice._