What is Discounted Cash Flow (DCF) Calculator and How Do You Calculate It?
Intrinsic Value = Present Value of 5-Yr Cash Flows + Present Value of Terminal ValueThis standardized equation forms the quantitative foundation used by chartered financial analysts (CFA), investment bankers, and corporate treasurers under GAAP and IFRS reporting frameworks.
Formula Components & Operational Definitions
FCF_0Operating Cash Flow minus Capital Expenditures.
gProjected annual growth of free cash flow.
rRequired hurdle rate / cost of capital.
g_termLong-term economic GDP growth rate (typically 2-3%).
Step-by-Step Real-World Worked Example
Apex Tech produces Rs 1,00,00,000 in base FCF, growing at 15% for 5 years with a 10% discount rate, 3% terminal growth, Rs 1,00,00,000 net debt, and 10,00,000 shares.
Strategic Takeaway: If the stock trades below Rs 228.38, it offers an attractive valuation margin of safety.
Industry Benchmark Comparison Table
DCF is the fundamental cornerstone of institutional valuation on Wall Street and Dalal Street.
Stock trades below intrinsic discounted cash flows.
Executive Sector Note: Terminal value typically constitutes 65%–80% of total DCF enterprise value.
Analytical Comparison & Critical Limitations
- Sensitive to small changes in discount rate and terminal growth assumptions.
Frequently Asked Questions
What is Free Cash Flow (FCF)?
Operating Cash Flow minus Capital Expenditures (CapEx). It is the cash available for distribution to debt and equity holders.