DCF Calculator

Every other valuation method — price-to-earnings, EV/EBITDA, dividend discount, comparable transactions — ultimately relies on assumptions that DCF makes explicit. Multiples implicitly assume growth, profitability, and discount rates baked into peer-group averages, but they hide the math. DCF surfaces every assumption: how fast cash flow grows, for how long, what discount rate captures risk, and how the value beyond the forecast horizon is treated. That transparency is also its greatest weakness — small changes to inputs produce large changes in output. The right way to use DCF is not to nail a single 'right' answer but to bracket a plausible range and ask whether the current market price falls inside or outside that range. A stock that trades 40% below your DCF estimate even under pessimistic assumptions is fundamentally cheap; one that requires aggressive growth just to justify today's price is fundamentally expensive.

The discount rate is the most consequential input in any DCF. WACC is the blended after-tax cost of debt and the cost of equity, weighted by capital structure. Cost of equity is typically estimated via CAPM: risk-free rate plus beta times the equity risk premium (roughly 5–6% historically). For US large-cap companies, WACC usually lands between 7% and 10%; mid- and small-caps run 9% to 13%; early-stage or speculative names range from 12% to 20% or more. Two practical tips: (1) check that your WACC is internally consistent with your cash flow forecasts — high-growth assumptions paired with low discount rates produce inflated valuations; (2) run the DCF at WACC ± 200 basis points to see how sensitive intrinsic value is to your choice. The sensitivity matrix in this calculator does exactly that across a 7×7 grid.

The terminal growth rate is where DCF models go to die. Because it compounds forever, even small differences swing enterprise value dramatically — a 3% terminal growth versus 2% can change intrinsic value by 30%+. The mathematical constraint is simple: terminal growth must stay below the WACC, otherwise the perpetuity formula returns infinity. The economic constraint is stricter: a company cannot grow faster than the economy forever, so terminal growth must be at or below long-run GDP growth, typically 2–3% in developed markets. Any value above 4% should be treated with suspicion. The terminal value typically represents 60–80% of total enterprise value in growth-oriented DCFs, which is why it deserves the most scrutiny. If your model produces an answer you like but only by pushing terminal growth toward the ceiling, you have a fragile valuation.

DCF has three well-known limitations. First, forecasts beyond 3–5 years are highly uncertain — competitive position, technology shifts, regulation, and macroeconomic surprises all distort the projected cash flow path. Second, terminal value concentration means a few hundred basis points of difference in WACC or growth can flip an investment thesis. Third, DCF ignores real-option value: management's ability to expand, contract, or abandon projects in response to new information. The practical response to all three limitations is to demand a margin of safety. Benjamin Graham's original definition was buying at a substantial discount to intrinsic value — typically 25–50% — so that ordinary forecast errors do not destroy the investment. Modern application: build the DCF with conservative inputs, then only buy when market price sits well below the resulting intrinsic value. Pair this with the sensitivity table in this calculator: the strongest investments stay undervalued across a range of WACC and terminal-growth combinations. Stocks that are only attractive in a single optimistic cell of the matrix are not investments — they are guesses.