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The DCF
Calculator
A company is worth the cash it will produce, discounted for time and risk. That single idea underwrites every valuation on Wall Street. Set the assumptions and watch what the discount rate really does.
Your assumptions
What the company is worth
– of the value sits in the terminal value
- PV of forecast cash flows
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- Terminal value (at horizon)
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- PV of terminal value
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- Enterprise value
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- Less: net debt
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- Equity value
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Sensitivity: EV by WACC and terminal growth
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What this teaches
Play with the discount rate first. Moving WACC from 10% to 8%, a change nobody can prove wrong, can move the valuation by a third. That is why the sensitivity grid, not the single number, is what actually gets presented to clients. A DCF does not tell you what a company is worth; it tells you what your assumptions are worth.
Then watch the terminal value meter. In most setups, well over half the value sits beyond the forecast horizon, compressed into one perpetuity formula. Push terminal growth toward the discount rate and the number explodes; the formula breaks entirely when they meet. Every veteran of a fairness opinion has watched that fight happen over half a percentage point.
Keep going with the LBO calculator and the accretion/dilution calculator, or look up enterprise value and EBITDA in the glossary.
Questions
What is a DCF?
A discounted cash flow analysis values a company as the sum of all the cash it will generate in the future, discounted back to today at a rate that reflects the risk. It is the most theoretically pure valuation method in finance, and the most assumption-sensitive.
What discount rate (WACC) should I use?
The weighted average cost of capital blends the cost of a company’s equity and debt. Large stable companies often land around 7 to 9 percent, typical public companies 8 to 12 percent, and risky or small businesses well into the teens. Small changes move the valuation a lot, which is what the sensitivity grid on this page shows.
What is terminal value and why is it so large?
Terminal value captures every year of cash flow beyond the explicit forecast, compressed into a single number using a perpetual growth rate. Because it stands in for decades, it routinely accounts for 60 to 80 percent of the total value. When the terminal share gets that dominant, the valuation is really a bet on the terminal assumptions.
Why does terminal growth have to be below the discount rate?
The perpetuity formula divides by the discount rate minus the growth rate. If growth matches or exceeds the discount rate, the formula produces an infinite or negative value, which is the math telling you no company grows faster than the economy forever. Keep terminal growth near long-run GDP growth, roughly 2 to 3 percent.