Discounted Cash Flow (DCF) Calculator
Category: Fundamental & Economic ToolsEstimate the intrinsic value of a stock based on projected future cash flows discounted to their present value
Company Information
Valuation Inputs
Growth Assumptions
Discount Rate
Valuation Results
Projected Cash Flows
Value Breakdown
Sensitivity Analysis
The table below shows how the estimated intrinsic value changes based on different combinations of discount rates and terminal growth rates.
| Intrinsic Value | Discount Rate | ||||||
|---|---|---|---|---|---|---|---|
| Terminal Growth | 8.0% | 9.0% | 10.0% | 11.0% | 12.0% | 13.0% | 14.0% |
Sensitivity Analysis Chart
DCF Calculation Breakdown
| Year | Projected FCF | Growth Rate | Discount Factor | Present Value |
|---|---|---|---|---|
| Terminal Value | $2,591M | 2.5% | 0.3855 | $159.1B |
| Sum of Present Values | $215.4B | |||
| Net Cash/(Debt) | $0.0B | |||
| Equity Value | $215.4B | |||
| Shares Outstanding | 1.0B | |||
| Intrinsic Value Per Share | $215.37 | |||
Valuation Analysis
Valuation Assessment
Based on the DCF analysis, the stock appears to be undervalued by 43.6% compared to the current market price. This suggests potential for capital appreciation if the market eventually recognizes the company's intrinsic value.
Sensitivity Analysis
The intrinsic value is moderately sensitive to changes in the discount rate and terminal growth rate. Even with more conservative assumptions (discount rate of 12% and terminal growth of 1.5%), the stock still appears undervalued.
Risk Assessment
73.8% of the estimated value comes from the terminal value, indicating moderate to high uncertainty in the valuation. Consider the margin of safety price of $161.53 as a more conservative entry point.
Investment Perspective
The DCF valuation suggests a buy opportunity at the current price. However, investors should also consider qualitative factors such as competitive position, management quality, and industry trends that may not be fully captured in this quantitative analysis.
Understanding DCF Valuation
Discounted Cash Flow (DCF) analysis is a valuation method used to estimate the intrinsic value of an investment based on its expected future cash flows, discounted to reflect their present value.
Key Components of DCF
- Free Cash Flow (FCF): Cash generated by the business after accounting for operating expenses and capital expenditures
- Growth Rate: Expected annual growth of cash flows during the forecast period
- Discount Rate: Rate used to discount future cash flows to present value, typically using WACC or a risk-adjusted required return
- Terminal Value: The value of all cash flows beyond the explicit forecast period
- Margin of Safety: A discount applied to the estimated intrinsic value to account for valuation uncertainties
Interpreting DCF Results
- Undervalued (IV > Market Price): The stock may be considered for purchase as it trades below estimated intrinsic value
- Fairly Valued (IV â Market Price): The stock is trading close to its estimated intrinsic value
- Overvalued (IV < Market Price): The stock may be considered expensive relative to its estimated intrinsic value
- High Terminal Value %: Greater dependence on uncertain long-term projections
- Sensitivity Analysis: Shows how changes in key assumptions impact the valuation
DCF Calculation Method
Limitations of DCF Valuation
While DCF is a powerful valuation method, it has several important limitations:
- Forecasting Uncertainty: Projections far into the future are inherently uncertain
- Terminal Value Sensitivity: Small changes in terminal growth rate can significantly impact the valuation
- Discount Rate Subjectivity: The choice of discount rate involves judgment and can dramatically affect results
- Cash Flow Stability: DCF works best for companies with predictable, stable cash flows
- Growth Assumptions: Assumes growth rates will behave as projected, which may not be realistic
For best results, use DCF in combination with other valuation methods and qualitative business analysis.
Why Your DCF Result Shows a Stock Might Be Undervalued
If your discounted cash flow (DCF) calculation returned an intrinsic value thatâs significantly higher than the current share price, youâre likely looking at a stock that appears undervalued on paper. But what does that actually mean for your trading or investing decision? Let's unpack the key findings from your DCF output and why they matter.
Key Insights From Your DCF Result
- Intrinsic Value Per Share: This is the calculated fair value based on expected future cash flows. In your case, it likely came out to $215.37 per share.
- Current Market Price: The stock is currently trading around $150.00, well below the intrinsic value.
- Upside Potential: The tool estimates potential price appreciation of approximately 43.6% from todayâs market price.
- Enterprise Value: A broader view of company worth, showing a total business value of $215.37B.
- Terminal Value Share: Around 73.8% of the calculated value comes from long-term projections, indicating reliance on future performance.
DCF Signals That Deserve Attention
Discounted cash flow models can spotlight some compelling opportunities, but they come with caveats. These are some of the most important takeaways from your result:
- Undervaluation Doesnât Guarantee Returns: While a large gap between intrinsic value and market price is attractive, itâs not an automatic green light. The market might be pricing in risks the DCF doesnât fully capture.
- Terminal Value Drives the Result: Nearly three-quarters of your valuation comes from the terminal value. Thatâs not unusual, but it highlights the weight of assumptions for cash flow beyond the explicit forecast period.
- Margin of Safety Suggests Caution: Applying a 25% margin of safety gives you a more conservative valuation of $161.53. This helps account for potential misjudgments in growth or discount rate inputs.
- Discount Rate Selection Matters: Whether you used WACC, CAPM, or a custom rate, this single input can drastically swing the outcome. A higher discount rate results in a much lower intrinsic value.
Signals to Watch in Your Sensitivity Output
The sensitivity analysis shows how fragileâor robustâyour valuation is under different assumptions. If you adjusted the terminal growth rate down to 1.5% and the discount rate up to 12%, the stock still appeared undervalued. Thatâs an encouraging signal.
- Conservative assumptions still support the case for upside
- A steeper discount rate could imply a changing risk profile
- Lower terminal growth pressures the long-term valuation heavily
These results tell you that even under less optimistic conditions, the margin between current market price and estimated intrinsic value remains meaningful. That doesnât remove risk, but it does provide some insulation.
Risks Behind a High Terminal Value Share
When 70% or more of a DCF valuation comes from terminal value, it can signal that your short- to mid-term forecasts arenât doing much heavy lifting. That might be due to:
- Slow projected growth in the first few years
- A very long forecast horizon (10+ years)
- Relatively low discounting in those later years
Hereâs where you might want to pause:
- Forecasting long-term cash flows is inherently difficult. Small changes in terminal growth rate assumptions can significantly impact value.
- Market conditions may shift. Rising interest rates, economic cycles, or changes in industry dynamics can make even the best projections obsolete.
- Company-specific risks arenât always modeled. Competitive threats, regulatory shifts, or leadership changes can derail otherwise stable cash flow trajectories.
Practical Tips Before Acting on Your DCF Result
- Compare your output with analyst estimates or peer valuations. Are you significantly off-market?
- Double-check growth rate assumptionsâespecially if theyâre aggressive beyond the industry average.
- Consider how much of your result is driven by the terminal value. Aim for a more balanced mix by adjusting growth or shortening the forecast window.
- Use the margin of safety figure as a benchmark entry price. This builds in a buffer for unexpected changes.
- Keep macro trends in mind. A low discount rate today might not reflect rising capital costs tomorrow.
Next Steps with Your DCF Analysis
Stay alert to new data, update your model periodically, and treat DCF as one lensânot the only oneâthrough which to assess opportunities in the market.