DCF Calculator

How to use this calculator

1. 1Enter free cash flowType the company's most recent annual free cash flow in £ millions. You'll find it on the cash flow statement (operating cash flow minus capital expenditure).
2. 2Enter shares outstandingAdd the number of shares in issue (in millions) so the model can convert total value into a per-share figure.
3. 3Set your growth assumptionsChoose how fast free cash flow grows in years 1–5, years 6–10, and forever after (terminal growth). Be conservative — terminal growth should not exceed long-run GDP (2–3%).
4. 4Set the discount rateThis is your required annual return, or WACC. 8–10% is typical for a stable large-cap; use more for riskier businesses.
5. 5Add the current share price (optional)Enter today's price to see the margin of safety — how far the intrinsic value sits above or below the market price.
6. 6Read the result and stress-test itCheck the intrinsic value per share, then use the sensitivity table to see how much it moves as growth and discount-rate assumptions change.

What a DCF actually tells you

The logic is simple: a company is worth the sum of all the cash it will ever return to owners, adjusted for the fact that money arriving in 10 years is worth less than money in hand today. The discount rate converts those future pounds into today's money, and the terminal value captures everything beyond the explicit forecast as a growing perpetuity.

Unlike a P/E ratio, which tells you what the market is paying right now, a DCF forces you to state your own assumptions about growth and risk — and then shows you what those assumptions imply the stock is worth. That makes it a discipline as much as a calculation.

Worked example

Suppose a company generates £500m of free cash flow, has 1,000m shares, and you assume 10% growth in years 1–5, 5% in years 6–10, 2.5% terminal growth, and a 10% discount rate.

The ten years of discounted cash flows are worth roughly £4.7bn, and the terminal value (discounted back) adds about £5.4bn — a total enterprise value near £10.1bn, or about £10.10 per share. Notice the terminal value is over half the total: that is normal, and it is exactly why your long-run growth and discount-rate assumptions matter so much.

How it's calculated

Each year's free cash flow is projected forward, then divided by a discount factor. The terminal value assumes cash flow grows at a constant rate forever after year 10.

How to read the result

Compare the intrinsic value per share to the current price. If the intrinsic value is meaningfully higher, the market may be undervaluing the business — the gap is your margin of safety. If it's lower, the price already assumes more growth than you've modelled.

Never treat a single number as precise. Use the sensitivity table to build a range: a good DCF answers "is this roughly cheap, fair, or expensive?", not "this is worth £10.09 exactly".

Limitations — what a DCF won't do

A DCF is only as good as its inputs, and small changes compound. It works best for stable, cash-generative businesses and poorly for early-stage companies, cyclicals at a peak or trough, and banks or insurers (whose cash flows work differently — use a residual income or dividend model instead).

• Terminal value dominates — often 50–70% of the answer, so the perpetuity assumptions carry most of the weight.
• Garbage in, garbage out — an optimistic growth rate can justify almost any price. Be honest with yourself.
• It ignores the balance sheet unless you adjust for net debt and cash separately.

Frequently asked questions