Value a business from its free cash flow. Enter growth, WACC and terminal growth and see value per share, a sensitivity grid, the growth the market price implies, and every step of the arithmetic.
Calculating…
The outlined cell is your base case. Small changes in these two inputs move the answer a lot, which is why a single DCF number should never be read alone.
A discounted cash flow values a business as the cash it will produce in the future, brought back to today's money. This calculator uses the standard two-stage method: an explicit forecast, then a terminal value for everything after it.
Each year's free cash flow is the previous year's grown at the rate you entered for that year.
Each cash flow is divided by (1 + WACC) raised to the number of years away it is. With mid-year discounting, cash is assumed to arrive evenly through the year, so each year is discounted half a year less.
After the forecast, cash flow is assumed to grow at a constant rate for ever (the Gordon Growth formula). WACC must be higher than terminal growth or the formula breaks.
Because the discount rate is WACC, which blends the cost of debt and equity, the cash flow must be the one available to both lenders and shareholders: unlevered free cash flow, before interest. A common mistake is to take operating cash flow minus capex (which is already after interest), discount it at WACC and then subtract net debt as well. That counts the cost of debt twice and understates the value.
Unlevered free cash flow: operating cash flow minus capital expenditure, plus interest expense multiplied by one minus the tax rate. It is the cash available to lenders and shareholders together, which is what a WACC-based DCF values.
Usually between 2% and 3% for a company reporting in US dollars. No business can grow faster than the economy for ever, so a rate above long-run nominal GDP growth needs a strong justification. The calculator raises a flag above 3%.
In a five-year forecast the terminal value is commonly 60% to 80% of enterprise value, because it represents every year after year five. When it passes 85% the calculator flags it: the answer then rests almost entirely on the distant future.
It turns the question around. Instead of asking what the shares are worth given your growth forecast, it asks what growth the current share price already assumes at your discount rate. If that growth looks hard to achieve, the price is demanding; if it looks easy, the price is undemanding. It describes the assumptions; it is not a recommendation.
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