Discounted Cashflow: DCF Calculator for Stocks

DCF analysis is a method of valuing a company using the concepts of the time value of money. All future cash flows are estimated and discounted by using the cost of capital to give their present values.

DCF Calculator website helps you to find the intrinsic value of stocks. We offer various customizable DCF Calculator and Stock valuation calculators for FREE.

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How to use DCF Calculator?

1. First, you need to enter the current year Free cash flow (FCF) of the company. The DCF model takes the yearly FCF and projects this over 10 years into the future by multiplying it with the expected growth rate (please assume a realistic growth rate for the company).

2. Next, it calculates the net present value (NPV) of these cash flows by dividing it by the discount rate. The calculator takes the NPV of the FCF from each of these 10 years and adds them up.

3. The last year FCF is multiplied by the terminal factor (usually between 7 to 12) to find the terminal or sell-off value of the company and added to the original calculations.

4. Finally, net cash and debt available on the company’s financial statements are adjusted in the calculations to arrive at the market value estimate of the entire company.

5. When you divide this value with the total number of outstanding shares, you will get the intrinsic value per share of the stock.

Frequently Asked Questions on DCF

1. How is DCF calculated?

The DCF Valuation involves valuing a company using the concept of Time Value of Money, where the future cash flows of the company are estimated and discounted by using the cost of capital to find their present value.

This method involves projecting FCF over the assumed time period, calculating the terminal value at the end of that period, and discounting all the FCFs and terminal values using the calculated discount rate to find the Net Present Value (NPV) of the total expected future cash flows of the company.

2. Why is the DCF calculator used?

DCF Calculator is used for calculating the intrinsic value (IV), in other words, the true value of the company. This intrinsic value is the real value of the company based on its cash flows, assets, and financial situation.

Investors should ideally buy the stocks at near the intrinsic value of the company. In addition, you can find whether the company is overvalued or undervalued using the calculated Intrinsic value. If the Intrinsic value of the company is greater than its current share price, it is undervalued. And vice versa, it is overvalued.

3. How do you use a DCF calculator?

You can use the DCF Calculator to find the intrinsic value of stocks. While using the DCF calculator, you have to find and enter the Free Cash Flow (FCF), Expected growth rate, discount rate, and other financial information of the company like total cash, debt, outstanding shares, and more. After entering all these stock data, the DCF calculator will calculate the Intrinsic value of that stock, based on the inputs.

4. What is an example of a DCF Calculation?

Let’s take a look at an example of DCF calculation to find the intrinsic value. If the Free Cash Flow (FCF) of the company is Rs 3,000 Cr, Total cash is Rs 200 Cr, Total debt is Rs 500 Cr, Total outstanding shares is 150 Cr, the Expected growth rate for the next 10 years is 12%, the discount rate is 10%, and terminal value multiple is 8, along with the margin of safety of 10%, then the intrinsic value of the company will be Rs 370.03.

5. How to find Discounted Cash Flows?

In order to find the discounted cash flows, first, we have to project the future cash flows of the company for the next few years by assuming a yearly growth rate of the company. The terminal value of the company is also calculated for the final year. Then, we have to discount all the future cash flows to the current Net Present Value (NPV), using the discount rate. 

6. How do you calculate DCF quickly?

Investors can quickly calculate the DCF to find the intrinsic value of the stocks using the discounted cash flow (DCF) calculator. If you’re looking to find the intrinsic value of Indian stocks, you can use Trade Brains Portal’s DCF Calculator, where all these financial values are available for quick calculation. 

7. What is DCF (Discounted Cash Flow)?

DCF is a popular absolute stock valuation calculation technique to find the intrinsic value of the stocks. The discounted cash flow uses the Free cash flow of the company to forecast the future FCFs and discount rate to find its present value. Other than FCF, dividends or EPS are also widely used to find the discounted cash flow. 

8. What is FCF (Free Cash Flow)?

Free cash flow is the excess cash that a company is able to generate after spending the money required for its operation or to expand its asset base. It represents the cash that is available for all the investors of the company. This is the cash at the end of the year, after deducting all operating expenses, expenditures, investments, etc and is available for distribution to all stakeholders of a company (Stakeholders include both equity and debt investors.)

9. What is the Growth Rate in DCF?

The growth rate is the expected rate at which the company may grow in the upcoming years. It’s really important to use a realistic growth rate for efficient calculations in a DCF calculator. Else, the calculated intrinsic value might be misleading.

Different investors use different approaches to find the expected growth rate of a company. A few of the common ways are by looking at the historical growth rate for the earnings or revenue, reading the analysts reports to find out what they are forecasting, peeking in the company’s annual report/latest news to find out what growth rate the management is expecting in the upcoming years, etc.

10. What is Discount Rate in DCF calculator?

The discount rate is usually calculated using CAPM (Capital Asset Pricing Model). However, you can also use the discount rate as the rate of return that investors want to earn from the stock. For example, let’s say that you want a return of 12% from stock. Then, you can use it as the discount rate.

As a thumb rule for the discount rate, use a higher value for the discount rate if the stock is riskier and a lower discount rate if the stock is safer (like blue-chip stocks). This rule is in accordance with the principle of the risk-reward which claims a higher reward for a higher risk.

11. What is the Terminal value in DCF?

The terminal value used in DCF calculation is the estimated value of the business after its forecasted period. The terminal value can be calculated either by using the Perpetual growth rate or Exit multiple techniques. The exit multiple approaches assume the company is sold at a multiple of a metric (like, EBITDA) based on currently observed comparable trading multiples for similar businesses. For example, we can assume EV/EBITDA as the exit multiple while calculating the DCF.

Try our Other Intrinsic Value Calculators

Fair Value Calculator

This is a simple discounted model calculator to help you find the fair value of a company using Earnings per share (EPS) forecast. With a few simple values, you can estimate the intrinsic value of a company.

Graham Calculator

Benjamin Graham, also known as the father of value investing, was known for picking cheap stocks. The graham calculator is a good tool to find a rough estimate of the intrinsic value. It is simple and very easy to use.

Advanced DCF Calculator

Advanced Discounted Cashflow Calculator to find the true value of stocks using terminal factor and terminal growth rate approaches. All future cash flows are estimated and discounted by using the cost of capital to give their present values.