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Business finance / Discounted Cash Flow Calculator

Discounted Cash Flow Calculator

What a business or project is worth today from its future free cash flows, a discount rate and a terminal value.
Free cash flow by year
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%

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Example. Usually your WACC, or the return you need on this investment.

%

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Example. Must be lower than the discount rate. Many analysts keep it at or below long-run inflation.

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Optional. Subtract it from enterprise value to get equity value. Enter a negative number if cash exceeds debt.

Enterprise value (DCF)
$1,635,726.16
$447,696.69PV of years 1–5
$1,188,029.46PV of terminal value
72.6%terminal value share
$0enterprise value $1,635,726.16
  • Years 1–5
  • Terminal value
Year 1 · $100,000.00 ÷ 1.10$90,909.09
Year 2 · $110,000.00 ÷ 1.21$90,909.09
Year 3 · $120,000.00 ÷ 1.33$90,157.78
Year 4 · $130,000.00 ÷ 1.46$88,791.75
Year 5 · $140,000.00 ÷ 1.61$86,928.99
Present value of years 1–5$447,696.69
Terminal value at year 5 · $140,000.00 × (1 + 2.5%) ÷ (10.0% − 2.5%)$1,913,333.33
Terminal value today · ÷ 1.61+$1,188,029.46
Enterprise value$1,635,726.16

At a 10.0% discount rate, the business is worth about $1,635,726.16 today before debt.

See breakdown

How the discounted cash flow calculation works

  1. DCF = CF1 ÷ (1 + r) + CF2 ÷ (1 + r)² + … + (CF5 + TV) ÷ (1 + r)⁵

    CF is each year's free cash flow, r the discount rate and TV the terminal value. Cash flows are counted at the end of each year.

  2. Discount each year's cash flow

    $100,000 in year 1 at 10% is worth $100,000 ÷ 1.10 = $90,909.09 today. Years 1–5 together are worth $447,696.69.

  3. Add a terminal value for the years after

    Gordon growth: TV = CF5 × (1 + g) ÷ (r − g). $140,000 × 1.025 ÷ 7.5% = $1,913,333.33 at year 5, or $1,188,029.46 today.

  4. Add the two to get enterprise value

    $447,696.69 + $1,188,029.46 = $1,635,726.16. Subtract net debt to get the value of the owners' equity.

Worked example. Free cash flows of $100,000, $110,000, $120,000, $130,000 and $140,000 discounted at 10% are worth $447,696.69 today. With 2.5% growth after year 5, the terminal value is $1,913,333.33 in year 5, or $1,188,029.46 today. Enterprise value is $1,635,726.16, and 72.6% of it comes from the terminal value.

Discounted Cash Flow FAQ

What is the discounted cash flow formula?

DCF = CF1 ÷ (1 + r)¹ + CF2 ÷ (1 + r)² + … + CFn ÷ (1 + r)ⁿ + TV ÷ (1 + r)ⁿ. Each future cash flow is divided by (1 + discount rate) raised to the number of years until it arrives.

What is the terminal value formula?

Perpetual growth (Gordon growth): TV = final-year cash flow × (1 + g) ÷ (r − g). Exit multiple: TV = final-year cash flow (or EBITDA) × the multiple. Either way, discount the TV back from the final year.

What discount rate should I use in a DCF?

For the whole business, use the weighted average cost of capital (WACC). For the owners' share alone, use the cost of equity. A small private business usually needs a higher rate than a large listed company because it is riskier.

What is the difference between DCF and NPV?

A DCF gives the present value of future cash flows. NPV subtracts the upfront cost from that present value. If the price you pay equals the DCF value, the NPV is zero.

Which cash flow goes into a DCF?

Free cash flow: operating cash flow minus capital spending. For enterprise value, use free cash flow to the firm (before interest). For equity value directly, use free cash flow to equity and discount at the cost of equity.

Why is the terminal value so large?

It covers every year after year 5, so it is often more than half the total. Test a few growth rates and multiples. If the long-term growth rate is close to the discount rate, the value can become unrealistic.

How do I get from enterprise value to equity value?

Subtract debt and add cash. Enter net debt (debt minus cash) and the calculator shows the equity value.

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