Discounted Cash Flow (DCF) Calculator

What a DCF valuation model is

A Discounted Cash Flow model answers one question: what is a company worth today, based on the cash it is expected to produce in the years ahead? The market price on your screen moves with news and sentiment, but the underlying worth of a business rests on the cash it can generate for its owners over time. A DCF translates that stream of future cash into a single present-day number called the intrinsic value.

The idea rests on a simple truth from everyday life: a dollar in your hand today is worth more than a dollar promised five years from now, because today’s dollar can be invested and grow. A DCF applies exactly that logic to a business. It forecasts future cash flows, shrinks each one back to its worth today — a step called discounting — and adds them up. The result is an estimate you can compare against the current share price.

Why cash flow, not reported profit

A DCF works from free cash flow rather than the reported net profit line. Reported profit can be shaped by accounting choices — how depreciation is booked, when revenue is recognised, one-off gains and losses. Free cash flow is harder to dress up because it tracks the actual cash a company has left after paying to run and grow itself. That makes it a cleaner measure of genuine earning power, which is why serious valuation work is built on it.

The DCF formula, explained

At its heart, a DCF rests on one master equation. It looks heavy at first, but each part is straightforward once broken down.

Intrinsic Value = Σ [ CF_t ÷ (1 + r)^t ] + [ TV ÷ (1 + r)ⁿ ]

The first part sums the present value of each forecast year’s cash flow. The second part adds the discounted terminal value — the worth of everything beyond the forecast window. The terminal value itself is found with the Gordon Growth method:

Terminal Value = CF_n × (1 + g) ÷ (r − g)

What each symbol means

The two-stage approach

Companies rarely grow at one fixed rate forever. A common and more realistic method splits the forecast into two stages: a higher-growth phase for the first five years, then a slower “fade” phase for years six to ten as growth normalises. After year ten, the terminal value captures everything that follows at a modest perpetual rate. The EquityTimer calculator uses this two-stage, ten-year structure.

A worked example: NVIDIA (NVDA)

The clearest way to understand a DCF is to run one. Here we use real reported figures for NVIDIA, a US-listed company, and the same two-stage method the EquityTimer calculator applies. The inputs:

Starting from $3.95 per share, each year’s cash flow is grown, then discounted back to its present value. Here is how the ten years unfold, followed by the terminal value:

Adding the ten discounted cash flows gives about $37.54 per share. The discounted terminal value adds $53.00. Together, the DCF fair value is roughly $90.54 per share.

Reading the result honestly

At the time of writing, NVIDIA traded near $202 per share — well above this DCF estimate of about $90. That gap is a valuable lesson, not a flaw in the method. A conservative, cash-flow-only model captures what the business earns today grown at a measured pace; it does not capture the very high future growth the market is currently pricing in. When a fast-growing company trades far above its DCF value, it usually means the market expects growth well beyond what a cautious model assumes. This is precisely why analysts test their assumptions, and why a DCF is most reliable for steady, predictable businesses.

Choosing sensible inputs

A DCF is only as good as the assumptions behind it. Three inputs drive most of the result.

Discount rate

The discount rate reflects the return you require and the risk of the cash flows. For large, stable US companies, a rate in the region of 8–10% is commonly used; riskier or smaller companies justify a higher rate. A higher discount rate lowers the intrinsic value, and a lower rate raises it — so this single number matters a great deal.

Terminal growth rate

Because no company can outgrow the wider economy forever, the terminal growth rate should stay modest — typically at or below long-run economic growth, often around 2–4%. It must always be lower than the discount rate; if the two get close, the terminal value inflates to a meaningless size.

Free cash flow

Free cash flow is operating cash flow minus capital expenditure. Draw it from the cash flow statement rather than working back from reported profit, and consider using an average of the last two or three years to smooth out one-off periods.

A practical rule: keep assumptions conservative. If small changes to growth or the discount rate swing the valuation wildly, treat the result with extra caution and lean towards cautious inputs.

DCF vs the P/E ratio

The price-to-earnings (P/E) ratio is quick and popular, but it looks backwards — it tells you what the market paid for past earnings, not what the business is worth going forward. A DCF is forward-looking and absolute: it values a company on the cash it is expected to generate. The two are best used together.

A sensible workflow is to screen quickly with P/E to build a shortlist, then run a DCF on the names that pass for a deeper, fundamentals-led view. Neither replaces the other; combined, they give both speed and depth.

The terminal-value caution

As the NVIDIA example showed, the terminal value often makes up the majority of a DCF result — frequently 55–80% of the total. Because it captures decades of cash compressed into one figure, a small change to the terminal growth rate can move the whole valuation. Always treat that portion of the model with extra care.

Using the EquityTimer DCF calculator

The calculator runs the same two-stage, per-share model shown above, so you can test any company’s numbers in seconds — no account needed.

1 · Enter the company and cash flow

Type the company name (and optional ticker), then the latest free cash flow and shares outstanding. The calculator divides one by the other to get a per-share cash flow base. If free cash flow is not available, you can enter EPS instead.

2 · Set the growth and discount assumptions

Enter the growth rate for the first five years. In the advanced panel you can adjust the fade rate for years six to ten, the discount rate, and the terminal growth rate. Sensible defaults are pre-filled, so you can start simple and refine later.

3 · Add the current price

Enter today’s market price. The calculator compares your DCF fair value against it and shows the gap as a percentage, alongside a visual gauge.

4 · Read the results

You will see the DCF fair value per share as the headline, a breakdown of the present value of forecast cash flow versus terminal value, the terminal-value weight, and a “buy below” figure based on your chosen margin of safety. A year-by-year table shows every cash flow, discount factor and present value.

5 · Works in your currency

The calculator adapts to the stock’s market — US dollars for American stocks, rupees and crore for Indian stocks, and other currencies detected from the ticker — so the figures always read naturally.

For a full, automatic valuation that combines several models on real filings, you can also open the EquityTimer Fair Value / Intrinsic Value calculator, which computes a DCF-based fair value for thousands of stocks without any manual entry.

Limitations & data

A DCF is a powerful framework, but it has real limits worth understanding before you rely on it.

• Assumption-sensitive. Small changes to growth or the discount rate can move the answer a lot — “garbage in, garbage out” applies fully.
• Terminal-value heavy. The majority of the value often sits in the terminal figure, which rests on a single perpetual growth assumption.
• Not for every company. A DCF works best for profitable businesses with reasonably predictable cash flows. It is far less reliable for banks, early-stage companies, or firms with erratic or negative cash flows.
• An estimate, not a fact. The output is a considered estimate within a range, never a precise price.

How the data is used

The worked figures in this guide are drawn from companies’ own reported filings. Where the calculator uses stored company data, fundamental figures such as free cash flow, earnings and share counts come from reported statements and are refreshed periodically. Current share prices are entered by the user, since the model compares your DCF value against the price you provide.

EquityTimer publishes factual, educational content only. It is not a SEBI-registered adviser, and nothing here is a recommendation to buy, sell or hold any security.