What Is DCF (Discounted Cash Flow)?
DCF (Discounted Cash Flow) is the classic intrinsic-value method that estimates a company's per-share value by discounting future free cash flows back to today. This card is interactive: you can adjust the FCF base, growth, terminal growth, WACC, and forecast horizon; the page recomputes instantly.
8 min read
How to read
- On the left there are 5 inputs: FCF basis (TTM / last full year / 3-year average), annual FCF growth (0-30%), terminal growth (0-5%), WACC (3-20%), forecast years (3-10).
- On the right, the large number is the 'Intrinsic Value / Share'; the badge below (Cheap / Fair / Expensive) compares it to spot price.
- Upside % is the percentage gap between intrinsic value and spot. ±10% is treated as 'fair'.
- The grid below shows EV, Equity Value, Terminal Value (and its % of EV), Net Debt, and share count. Terminal Value usually accounts for the majority of DCF value.
- The projection table breaks down each year's expected FCF, discount factor, and present value. The sensitivity matrix shows intrinsic value across WACC × growth combinations — read it to see how sensitive the result is to your assumptions.
Threshold ranges
- Upside ≥ +10%Intrinsic above spot — 'Undervalued'.
- Upside -10% to +10%Fair — roughly correctly priced.
- Upside ≤ -10%Spot above intrinsic — 'Overvalued'.
- Terminal / EV > 70%Most of the value sits in perpetuity assumptions — high sensitivity.
- WACC ≈ 8-10% (US large-cap)Typical reference range.
- Terminal g ≥ WACCMath blows up to infinity; a warning will appear.
Watch out for
- DCF's biggest weakness is its sensitivity to inputs. Moving WACC by 1 point can shift intrinsic value 20%+. Don't anchor on a single number — read the sensitivity matrix.
- Terminal growth MUST be below WACC; equal or higher causes the math to diverge (a warning shows). Typical terminal growth is 2-3% (long-term inflation/GDP).
- If the FCF base contains one-offs (asset sales, lawsuit payouts), the result is misleading. Switch from 'last full year' to '3-year average'.
- Classic DCF doesn't work for unprofitable or cash-burning companies — for growth names look at P/S or revenue-based models instead.
Sector note
DCF works best for mature, steady-cash businesses (KO, JNJ, PG). For early-stage growth (young tech, biotech) results vary wildly across input changes.
Try on live data
See these metrics on real US stocks: