DCF Calculator FAQ
What is a DCF model?
A discounted cash flow (DCF) model estimates value by projecting future cash flows and discounting them back to the present at a required return. In stock valuation, the result is often interpreted as intrinsic value or fair value.
What formula does this DCF calculator use?
This calculator uses a two-stage DCF model. It discounts the cash flows in a finite high-growth period and then adds a terminal value with perpetual growth: P0 = Σ(CF0(1+g1)^t / (1+r)^t) + [CFN(1+g2) / (r-g2)] / (1+r)^N.
What should I use as cash flow per share?
Many analysts use normalized free cash flow per share as the starting input. You can also use another per-share cash-flow proxy, but the valuation only makes sense if the cash flow is sustainable and consistent with the discount rate and growth assumptions.
Why must the discount rate be higher than the terminal growth rate?
Because the terminal value uses r - g2 in the denominator. If the terminal growth rate is equal to or higher than the discount rate, the formula breaks down and the valuation becomes unrealistic.
Can this DCF calculator solve for discount rate or growth too?
Yes. This tool supports reverse calculation. You can solve for the missing current cash flow per share, discount rate, high-growth rate, terminal growth rate, high-growth period, or intrinsic value per share.
How is DCF different from Gordon Growth?
The Gordon Growth Model is a single-stage constant-growth valuation model. This DCF calculator is more flexible because it allows a separate high-growth period before switching to a lower terminal growth rate.
