About this calculator
This calculator is for education only and does not constitute investment advice. It values a business the textbook way: project its free cash flow, discount each year back to today, add a terminal value for everything after the projection, and divide by shares outstanding.
The number that matters most is not the headline value — it is the matrix below it. When the discount rate equals the high-growth rate, the projected years each contribute the same present value, and the terminal value dominates the total. Move either assumption by two points and the answer moves by tens of percent: that is normal for a DCF, and exactly why a single fair-value number without a matrix is not a result.
How to use it
- Enter current free cash flow and how fast it grows during the high-growth period, and for how many years.
- Enter the perpetual terminal growth rate (below the discount rate) and the discount rate.
- Enter shares outstanding and the current share price for the margin of safety.
- Read the intrinsic value, then read the matrix: the diagonal from top-left to bottom-right is where small assumption changes bite hardest.
The formula
Each projected year t grows free cash flow at the high-growth rate g and discounts it at r. The terminal value uses the Gordon growth formula on the first post-projection cash flow, FCF_N × (1 + gₜ), divided by (r − gₜ) — which is why r must exceed gₜ, or the formula divides by zero or a negative number and the model breaks. The matrix recomputes the whole valuation at terminal growth ±2 percentage points and discount rate ±2 points. No adjustment is made for cash, debt or non-operating assets; free cash flow is taken as distributable as entered.
Worked example
Free cash flow $100M growing 10% for 5 years, terminal growth 3%, discount rate 10%, 10M shares, current price $150: projected cash flows are $110M, $121M, $133.1M, $146.41M and $161.051M — each worth exactly $100M in present value, $500M combined. Terminal value is $2,369.75M, worth $1,471.43M today. Total value $1,971.43M gives $197.14 per share, a 23.91% margin of safety over $150. In the matrix, dropping terminal growth two points (to 1%) while raising the discount rate one point (to 11%) cuts the value to $145.20 a share.
Sources: Standard multi-stage DCF: Gordon growth terminal value, discrete annual discounting. No net cash or debt adjustment — the figure values operating cash flows only. Last updated: October 2026.
Frequently asked questions
Why is the terminal value most of the answer?
Because it capitalizes every year after the projection into one number. In the example it is $1,471.43M of the $1,971.43M total — about three quarters. Any DCF where the terminal value is small either has a very long projection or a very high discount rate.
What if the discount rate is below the terminal growth rate?
The model refuses: the Gordon formula divides by (r − gₜ), so r ≤ gₜ gives an infinite or negative terminal value. In practice that input pair means the growth assumption is implausible for perpetuity — lower the terminal growth rate.
Does this include cash and debt?
No. The result values the projected operating cash flows only. A full enterprise-to-equity bridge would add cash and subtract debt before dividing by shares; this calculator deliberately leaves that step out and says so, rather than guessing balance-sheet figures.
What counts as free cash flow here?
Cash available to all capital providers after operating costs, taxes and reinvestment — typically operating cash flow minus capital expenditure. Enter it on the same basis every year; mixing definitions across years silently breaks the projection.
What formula does this dcf valuation calculator use?
Value = Σ FCF₀×(1+g)ᵗ / (1+r)ᵗ + [FCF_N×(1+gₜ) / (r − gₜ)] / (1+r)ᴺ; value per share = value / shares; margin of safety = (value per share − price) / value per share Each projected year t grows free cash flow at the high-growth rate g and discounts it at r. The terminal value uses the Gordon growth formula on the first post-projection cash flow, FCF_N × (1 + gₜ), divided by (r − gₜ) — which is why r must exceed gₜ, or the formula divides by zero or a negative number and the model breaks. The matrix recomputes the whole valuation at terminal growth ±2 percentage points and discount rate ±2 points. No adjustment is made for cash, debt or non-operating assets; free cash flow is taken as distributable as entered. The worked example on this page applies the formula step by step with real numbers, so you can verify the result by hand.