DCF Calculator
Value a fictional company with a discounted cash flow model: change its free cash flow, growth, and discount rate, and see the value per share, the yearly discounted cash flows, and how much comes from the terminal value.
A Discounted cash flow (DCF). A way to estimate value by forecasting the cash a business will produce and converting it into today's dollars with a discount rate. More on this term model values a business as the cash it's expected to generate, with each year's cash converted to today's dollars. This calculator runs one for STU Corp, a fictional company used throughout the Hyperion Entities lessons, with a share price of $50.
The sandbox discounts free cash flow to shareholders at the discount rate you choose, over a five-year forecast plus a terminal value. It's a teaching tool, not a forecast or a recommendation.
Things to try
- Raise the discount rate by one point and watch the value per share fall.
- Change the growth after year five from 3% to 4%. The terminal value usually carries most of the total, so small changes there move the answer a lot.
- Find the growth rate at which the value equals the $50 share price. That's the idea behind a reverse DCF: what the market price assumes.
What it can't tell you
The arithmetic is exact, but every input is an estimate. A DCF is most useful as a range across reasonable assumptions, and as a way to see which assumptions matter most. Reverse DCF turns the question around.
The lessons behind it
- Discounted Cash Flow, Step by StepPart 4: Research and Valuation · Free
- Time Value of Money and Discount RatesPart 4: Research and Valuation · Free
- Terminal Value and SensitivityPart 4: Research and Valuation