DCF Calculator

What Is Discounted Cash Flow (DCF) Analysis?

DCF is the valuation method underlying nearly all serious fundamental investing, including Warren Buffett and Charlie Munger's own approach: a business is worth the sum of all the cash it will generate for its owners over its lifetime, discounted back to today's value because money received in the future is worth less than money in hand now.

This calculator uses a standard two-stage model: it projects free cash flow growing at your specified rate for 10 years, then assumes a lower, sustainable "terminal" growth rate forever after, valued using the Gordon Growth (perpetuity) formula. Both stages are then discounted back to present value using your chosen discount rate and summed.

How to Use This Calculator

Enter the company's most recent annual free cash flow (operating cash flow minus capital expenditures — found on the cash flow statement, or per-share if you prefer per-share output). Set a realistic growth rate for the next decade based on the company's history and prospects — be conservative, since overestimating growth is the most common DCF mistake. Set a terminal growth rate that no company can exceed forever — often close to long-run GDP or inflation growth, typically 2–3%. Set your discount rate to reflect the return you require to compensate for the investment's risk — many investors use 8–12% for stable large-caps, higher for riskier businesses.

Why DCF Is Powerful but Sensitive

DCF is theoretically the most complete valuation method because it captures a business's entire future economics in one number. But it is also highly sensitive to its inputs — small changes in the growth rate or discount rate can swing the resulting value dramatically. This is why serious investors run DCF across a range of assumptions (a "sensitivity analysis") rather than trusting a single output, and why Buffett himself has said precise DCF outputs matter less than getting the general magnitude and direction right.

Frequently Asked Questions

What discount rate should I use?

Many value investors simply use their personal required rate of return — often 10%, roughly the long-run historical return of the stock market — rather than a more complex weighted-average cost of capital calculation. Higher-risk or more cyclical businesses warrant a higher discount rate to compensate for that added uncertainty.

Why does the terminal value often dominate the total?

In most DCF models, the terminal value (representing everything after year 10, discounted back) makes up 60–80% of the total intrinsic value estimate. This is a well-known critique of DCF: most of the value rests on an assumption about what happens far in the future, which is inherently the least certain part of the forecast.

Is this the same DCF method professional analysts use?

It's a simplified version of the same core logic. Professional models often separately forecast revenue, margins, and capital expenditure line by line rather than a single free cash flow growth rate, and may use a full weighted-average cost of capital. This calculator captures the same fundamental mechanics in a form usable without a spreadsheet.