DCF company valuation.

Discounted Cash Flow (DCF) values a company as the present value of its future cash flows. Two-stage model: explicit projection period (5-10 years) plus terminal value (perpetual growth at terminal rate). Most rigorous valuation methodology, used by investment banks for M&A and IPOs.

Example: 10M initial cash flow, 8% growth for 10 years, 2% terminal growth, 10% discount rate. PV of explicit period = 108M. Terminal value = (10M × 1.08^10 × 1.02) / (0.10 - 0.02) = 275M. PV of terminal = 106M. Enterprise value = 214M. Terminal value typically 50-70% of total - small assumption changes drive large valuation swings.

DCF strengths: rigorous, captures full economic value. Weaknesses: highly sensitive to assumptions (discount rate, terminal growth), garbage in / garbage out. Best practice: build DCF, then sense-check against market multiples (EV/EBITDA). If DCF says 100M and peer multiples say 50M, your assumptions are probably too aggressive. Use DCF + multiples + comparable transactions for triangulation.

A worked example

Try the defaults: year 1 free cash flow of 10,000,000, growth rate of 8%, terminal growth of 2%, discount rate of 10%. The tool returns 196,651,893.90. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.

What moves the number most

The result responds to Year 1 Free Cash Flow, Growth Rate % (explicit period), Terminal Growth %, Discount Rate %, and Projection Years. Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.

The formula behind this

Two-stage DCF: PV of explicit period cash flows + PV of terminal value (Gordon growth model). Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.

Where this fits in planning

This is a "what-if" tool, not a forecast. Use it to test ideas before committing: what happens if the rate is 2% lower than hoped, what happens if you add five more years. The value is in the scenarios you run, not the single answer you get from the defaults.

What this doesn't capture

Steady-rate math ignores real-world volatility. Actual returns are lumpy; sequence-of-returns risk matters most in drawdown; fees and taxes drag on compound growth; and behaviour changes in drawdowns can reduce outcomes below the projection. Treat the number as one scenario, not a forecast.