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DCF Calculator

Estimate corporate intrinsic value based on discounted future cash flows and terminal value.

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Operating cash flow minus capital expenditures

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Forecast annual growth for explicit 5-year period

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Cost of capital or required rate of return

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Long-term GDP growth ceiling (must be less than discount rate)

Gordon Growth Rule

The terminal growth rate must be lower than the discount rate (r > g). If r ≤ g, terminal value becomes mathematically undefined.

Results

Intrinsic Enterprise Value
₹13,81,537
PV of 5-Yr Forecast₹4,30,767
PV of Terminal Value₹9,50,770
Undiscounted Terminal Value₹16,75,581
Terminal Value % of Total68.8%

DCF intrinsic valuations are highly sensitive to discount and terminal assumptions.

How Discounted Cash Flow (DCF) Works

Discounted Cash Flow (DCF) models the fundamental principle of corporate finance: an asset's intrinsic value equals the sum of all future cash flows it will produce, discounted back to the present day using an appropriate risk-adjusted cost of capital. The valuation bifurcates into two distinct stages:

Stage 1: Explicit Forecast Horizon (Years 1–5)
PV = ∑ [ FCFt ÷ (1 + r)t ]

Discounts discrete annual free cash flows across the predictable operating projection window using WACC (r).

Stage 2: Gordon Growth Terminal Value
TV = [ FCF5 × (1 + g) ] ÷ (r − g)

Values cash flows from Year 6 into perpetuity assuming perpetual growth (g) capped at long-term GDP expansion.

Worked Example: 5-Year Enterprise DCF Valuation Schedule

Valuing an enterprise starting with Year 1 Free Cash Flow of ₹1,00,000 growing at 10% annually for 5 years, with a 12% WACC discount rate and 3% perpetual terminal growth rate:

Projection PeriodNominal FCFDiscount Factor (12%)Present Value (PV)% of Enterprise Value
Year 1 (Base Forecast)₹1,00,0001 ÷ (1.12)1 = 0.8929₹89,2866.46%
Year 2 (+10% Growth)₹1,10,0001 ÷ (1.12)2 = 0.7972₹87,6916.35%
Year 3 (+10% Growth)₹1,21,0001 ÷ (1.12)3 = 0.7118₹86,1266.23%
Year 4 (+10% Growth)₹1,33,1001 ÷ (1.12)4 = 0.6355₹84,5896.12%
Year 5 (+10% Growth)₹1,46,4101 ÷ (1.12)5 = 0.5674₹83,0806.01%
Sum: 5-Year Explicit Cash Flows₹6,10,510—₹4,30,77131.18%
Terminal Value (Year 5 Nominal)[₹1,46,410 × 1.03] ÷ (0.12 − 0.03)₹16,75,581——
PV of Terminal Value₹16,75,581 ÷ (1.12)50.5674₹9,50,75768.82%
Total Intrinsic Enterprise Value₹4,30,771 + ₹9,50,757—₹13,81,529100.0%

Sensitivity: WACC vs. Perpetual Terminal Growth

Because terminal value accounts for nearly 70% of total enterprise value, minor changes in assumptions dramatically move intrinsic value:

  • +1% WACC (13%): Intrinsic value contracts from ₹13.82L to ~₹11.96L (−13.5% reduction).
  • −1% WACC (11%): Intrinsic value expands from ₹13.82L to ~₹16.32L (+18.1% gain).
  • Terminal Growth Cap (g < r): Perpetual growth must never exceed long-term GDP growth (typically 2% to 4%), otherwise the company would mathematically consume the entire global economy.

Unlevered FCF (FCFF) vs. Levered FCF (FCFE)

Distinguishing the cash flow base dictates the appropriate discount rate:

  • FCFF (Free Cash Flow to Firm): Cash flow available to all capital providers (debt + equity) before interest payments. Must be discounted at WACC. Yields Enterprise Value.
  • FCFE (Free Cash Flow to Equity): Cash flow remaining after debt service (interest + principal repayments). Must be discounted at the Cost of Equity (Ke). Yields Equity Value.

Assumptions & Analytical Limitations

  • Terminal Value Dominance: With 65% to 80% of value residing in perpetuity assumptions, DCF is highly vulnerable to "garbage-in, garbage-out" modeling errors. Small tweaks in terminal spread (r − g) overpower 5 years of operating forecasts.
  • Reinvestment Rate Equilibrium: The Gordon Growth model assumes the firm reinvests capital at its exact cost of capital into perpetuity once high-growth winds down.
  • Constant Capital Structure Assumption: Using a constant WACC discount rate presumes debt-to-equity proportions remain unchanged across the entire horizon.
Modeling terminal value in your intrinsic valuation?Read our valuation guide on DCF Valuation & Terminal Value: Gordon Growth vs. Exit Multiple Method and Sensitivity Pitfalls to cross-validate exit multiples against Gordon Growth perpetuities and build 2D sensitivity matrices.

Frequently asked questions

Why is terminal value often 70%+ of DCF value?
Because companies are assumed to exist as going concerns into perpetuity, all cash flows earned beyond year 5 accumulate into the terminal value, making it naturally the largest component of total value.
What discount rate should I use?
For firm valuation, use the Weighted Average Cost of Capital (WACC), which reflects the blended required returns of equity investors and debt lenders. Typically, WACC ranges between 8% to 15% depending on risk.
What is the Gordon Growth Model rule for terminal value?
The perpetual growth rate (g) must strictly be lower than the discount rate (r). If perpetual growth equals or exceeds the cost of capital, the enterprise is mathematically modeled to grow larger than the overall economy, rendering the valuation undefined.
What is a realistic perpetual terminal growth rate?
In practice, perpetual terminal growth rates are typically pegged to long-run nominal GDP growth or expected inflation rates, typically ranging between 2% and 4% for mature economies and up to 5% to 6% for rapidly expanding developing markets.
How does DCF differ from market multiples like P/E or EV/EBITDA?
DCF calculates fundamental intrinsic value derived from the firm's expected cash generation and risk profile, whereas market multiples reflect relative valuation based on current market sentiment and peer pricing.

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Intrinsic Enterprise Value

₹13,81,537