DCF Calculator Business Valuation Tool
Calculate present value of future cash flows
Professional DCF (Discounted Cash Flow) calculator for business valuation. Estimate enterprise value by projecting future cash flows and discounting them to present value using WACC.
DCF Parameters
Number of years to project cash flows (1-20)
Weighted Average Cost of Capital (typically 8-15%)
Long-term growth rate (typically 2-3%, must be < discount rate)
Projected Free Cash Flows
Understanding DCF Valuation
What is DCF?
Discounted Cash Flow (DCF) is a valuation method that estimates the value of an investment based on its expected future cash flows. The model discounts these cash flows back to their present value using a discount rate (WACC).
Key Components
- Free Cash Flows: Expected cash generated by the business
- Discount Rate (WACC): The required rate of return
- Terminal Value: Value beyond the projection period
- Present Value: Today's value of future cash flows
Why Use Our DCF Calculator?
Enterprise Valuation
Calculate the intrinsic value of your business or investment using professional DCF methodology trusted by financial analysts worldwide.
Terminal Value
Automatically calculates terminal value using perpetuity growth method, capturing value beyond the projection period for comprehensive valuation.
Visual Insights
Interactive charts showing cash flow projections, present values, and value composition for better understanding of your business valuation.
How to Use the DCF Calculator
Set Your Parameters
Enter the projection period (typically 5-10 years), discount rate (WACC), and terminal growth rate. The discount rate should reflect your cost of capital, while terminal growth is usually 2-3%.
Input Free Cash Flows
Enter your projected free cash flows for each year. These should be unlevered free cash flows available to all investors after operating expenses and capital expenditures.
Analyze the Results
Review the calculated enterprise value, which combines the present value of projected cash flows and terminal value. Use the visual breakdown to understand value composition.
Perform Sensitivity Analysis
Try different discount rates and growth assumptions to understand how sensitive your valuation is to these key inputs. This helps assess valuation risk.
Understanding DCF Valuation
What is DCF Analysis?
Discounted Cash Flow (DCF) analysis is a fundamental valuation method used in finance and investment banking. It estimates the value of an investment based on its expected future cash flows, which are then "discounted" back to their present value using a discount rate that reflects the risk of those cash flows.
Key Components
- • Free Cash Flows (FCF): The cash generated by the business that's available to all investors, calculated as operating cash flow minus capital expenditures.
- • Discount Rate (WACC): The Weighted Average Cost of Capital represents the required rate of return for investors and reflects the riskiness of the cash flows.
- • Terminal Value: Represents the value of all cash flows beyond the projection period, typically calculated using a perpetuity growth model.
- • Enterprise Value: The sum of present values of projected cash flows and terminal value, representing the total value of the business.
When to Use DCF?
DCF analysis is particularly useful for:
- • Valuing mature businesses with predictable cash flows
- • Making investment decisions in stocks or private companies
- • Evaluating merger and acquisition opportunities
- • Assessing whether a stock is overvalued or undervalued
- • Capital budgeting and project evaluation
Important Considerations
DCF is sensitive to assumptions about future cash flows, discount rates, and growth rates. Small changes in these inputs can significantly impact valuation. Always perform sensitivity analysis and compare DCF results with other valuation methods like comparable company analysis or precedent transactions.
Why Our DCF Calculator Stands Out
Professional-Grade Formulas
Uses the same DCF methodology trusted by investment bankers and financial analysts at top firms worldwide for accurate business valuations.
Interactive Analysis
Dynamic visualizations and breakdowns help you understand value drivers and test different scenarios with real-time sensitivity analysis.
Terminal Value Included
Automatically calculates terminal value using perpetuity growth method, capturing the full business value beyond your projection period.
Frequently Asked Questions
What is DCF and why is it important?
DCF (Discounted Cash Flow) is a fundamental valuation method that estimates a business's intrinsic value by projecting future cash flows and discounting them to present value. It's important because it focuses on actual cash generation rather than accounting earnings, providing a true picture of business value.
What discount rate should I use?
The discount rate should typically be your Weighted Average Cost of Capital (WACC), which reflects the cost of equity and debt financing. For most businesses, WACC ranges from 8-15%. Higher risk businesses require higher discount rates. Conservative investors often use 10-12% as a starting point.
How many years should I project cash flows?
Most DCF models use 5-10 year projections. Five years is standard for stable businesses, while 10 years may be appropriate for high-growth companies. The terminal value calculation captures all value beyond your projection period, so you don't need extremely long projections.
What is terminal value and why does it matter?
Terminal value represents the value of all cash flows beyond your explicit projection period. It typically accounts for 60-80% of total enterprise value. We calculate it using the perpetuity growth method, assuming the business grows at a stable rate (usually 2-3%) forever.
What's the difference between enterprise value and equity value?
DCF calculates enterprise value, which is the value of the entire business. To get equity value (value for shareholders), subtract net debt (total debt minus cash) from enterprise value. Enterprise value represents what you'd pay to own the entire company debt-free.
How accurate is DCF valuation?
DCF accuracy depends heavily on the quality of your assumptions about future cash flows, discount rate, and terminal growth. It's best used as one of multiple valuation methods. Always perform sensitivity analysis to understand how changes in key assumptions affect valuation, and compare DCF results with market comparables.
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