DCF Valuation Calculator

DCF Valuation Calculator: calculate dcf valuation for your business. Formula, benchmarks, and practical tips included.

A discounted cash flow (DCF) calculator values a business, project, or investment by projecting future free cash flows and discounting them back to present value using the appropriate discount rate (typically WACC). DCF is the theoretically correct method for any asset valuation — it is the foundation of investment banking, private equity, and corporate finance. The present value of all future cash flows is the intrinsic value of the asset: if the current market price is below this intrinsic value, the asset may be undervalued. Profit Margin Calculator provides the discount rate for DCF; Markup Calculator extends to enterprise value.

DCF is simultaneously the most powerful and most sensitive valuation tool — small changes in growth rate assumptions or the discount rate produce large changes in the calculated value. A 1% change in the perpetuity growth rate or discount rate typically changes the terminal value (which often represents 50–80% of total DCF value) by 15–40%. Understanding and stress-testing these sensitivities is essential for any serious DCF analysis.

Project free cash flows (FCF) for each year of the explicit forecast period (typically 5–10 years): FCF = EBIT × (1 − tax rate) + D&A − Capex − change in working capital.
Enter the discount rate (WACC for company valuation; cost of equity for equity valuation).
Calculate terminal value using the Gordon Growth Model: TV = FCF_last × (1 + g) ÷ (WACC − g), where g = perpetuity growth rate (typically 2–3% for mature companies).
Discount all FCFs and terminal value to present value: PV = Cash flow ÷ (1 + WACC)^year.
Sum all present values to get enterprise value. Subtract net debt to get equity value.

DCF valuation formula

PV of FCF = Σ [FCFₜ ÷ (1 + WACC)ᵗ] for t = 1 to n

Terminal value = FCFₙ × (1 + g) ÷ (WACC − g)

PV of terminal value = Terminal value ÷ (1 + WACC)ⁿ

Enterprise value = PV of FCFs + PV of terminal value

Equity value = Enterprise value − Net debt

Worked example: FCFs years 1–5: 10, 12, 14, 16, 18. WACC 9%. Year 5 FCF grows at 3% in perpetuity. TV = 18 × 1.03 ÷ (0.09 − 0.03) = 309. PV of TV = 309 ÷ 1.09⁵ = 200.8. PV of FCFs ≈ 53.5. Enterprise value ≈ 254.3. Net debt 40. Equity value ≈ 214.3.

DCF sensitivity analysis

Terminal value contribution

In most DCF valuations, terminal value represents 50–80% of total enterprise value — making the perpetuity growth rate and discount rate the most sensitive assumptions. A sensitivity table varying WACC (±1%) and g (±0.5%) typically shows a 30–60% range of outcomes from the central estimate — illustrating why DCF gives a range of values rather than a single number. Comparing DCF value against market multiples (EV/EBITDA, P/E) provides a useful cross-check: if DCF and multiples agree, confidence in the valuation is higher.

Business tips and best practices

Always present a DCF as a range, not a point estimate — build a sensitivity table of enterprise value vs WACC and terminal growth rate as standard practice.
Be consistent between FCF and discount rate — unlevered FCF (pre-debt service) should be discounted at WACC; equity FCF (post-debt service) at cost of equity.
Normalise FCFs before projecting — remove one-time items, smooth working capital, and use mid-cycle capex rather than any single year's exceptional capex.

Terminal value typically represents 60–80% of total DCF enterprise value for mature, slow-growth companies; 40–60% for high-growth companies with longer explicit forecast periods.
Warren Buffett has famously described DCF as the correct way to value any asset — but noted that the precision of the arithmetic disguises the imprecision of the assumptions.
A 0.5 percentage point reduction in WACC from 9% to 8.5% on a 10-year DCF with stable FCFs increases enterprise value by approximately 7–10%.

Common mistakes to avoid

Using a perpetuity growth rate above GDP growth — no company can grow faster than the economy forever; typical long-run perpetuity rates are 1.5–3% for developed markets.
Discounting equity cash flows at WACC — unlevered FCF goes to all capital providers and should be discounted at WACC; equity FCF should be discounted at cost of equity.
Not performing a sensitivity analysis — a single-point DCF valuation gives false precision; always show the range of values across reasonable assumption variations.

DCF valuations are financial models based on assumptions about future cash flows and discount rates. They are not predictions of actual future results. DCF valuations used in M&A transactions, fairness opinions, or public market communications are subject to applicable securities law and must be prepared by qualified financial professionals. Regulatory bodies (financial regulators, competition authorities) scrutinise DCF assumptions used in regulated proceedings. This calculator is for educational purposes only and does not constitute financial advice or a formal valuation.