Free tool
DCF calculator: estimate a stock’s intrinsic value
Estimate what a share is worth from the cash the business can generate. Enter free cash flow per share, growth for the next ten years and a discount rate — or load the figures of one of 58 large US companies — and the calculator discounts every future cash flow back to today.
Intrinsic value per share
$117.58
Margin of safety at the current price: 15.0%.
Terminal value: 58% of the result.
Year-by-year cash flows
| Year | Free cash flow | Present value |
|---|---|---|
| 1 | $5.50 | $5.05 |
| 2 | $6.05 | $5.09 |
| 3 | $6.66 | $5.14 |
| 4 | $7.32 | $5.19 |
| 5 | $8.05 | $5.23 |
| 6 | $8.46 | $5.04 |
| 7 | $8.88 | $4.86 |
| 8 | $9.32 | $4.68 |
| 9 | $9.79 | $4.51 |
| 10 | $10.28 | $4.34 |
| Terminal | $162.07 | $68.46 |
How the DCF calculation works
A discounted cash flow (DCF) model values a share as the sum of all the cash it will return, each amount discounted for the time you wait for it. The calculator grows free cash flow per share at your first growth rate for years 1 to 5, then at your second rate for years 6 to 10.
Each year’s cash flow is divided by (1 + discount rate) raised to the number of years. After year 10, a terminal value assumes cash flow keeps growing forever at the terminal rate: FCF in year 10 × (1 + terminal growth) ÷ (discount rate − terminal growth). That terminal value is discounted like the year-10 cash flow. Intrinsic value per share is the sum of the ten discounted cash flows and the discounted terminal value.
Choosing the inputs
Discount rate: the return you require for the risk you take. For large, established US companies, 8% to 10% is a common range; use more for cyclical or indebted businesses. Terminal growth: keep it at or below long-run nominal economic growth, typically 2% to 3% — no company outgrows the economy forever. Growth for years 1 to 10: anchor it on the company’s past revenue and cash flow growth, and fade it in the second half, as competition catches up.
Worked example
With free cash flow of $5 per share, 10% growth for five years, 5% for the next five, a 9% discount rate and 2.5% terminal growth, the intrinsic value comes out at $117.58 per share. The terminal value accounts for 58% of it: most of what a DCF says about a company is what you assume beyond the next ten years.
Limits
Small changes in the discount rate or terminal growth move the result a lot: test several scenarios rather than trusting one number. A DCF does not work for companies with negative free cash flow. This calculator is a simple two-stage model; Arqon’s valuation grades combine several models and compare today’s multiples with their history.
Frequently asked questions
What is the intrinsic value of a stock?
It is an estimate of what a share is worth based on the cash the business will generate, independently of its current market price. A DCF is the most common way to estimate it.
What discount rate should I use in a DCF?
The discount rate is the annual return you require. Many investors use 8% to 10% for large, stable US companies and 10% to 12% or more for smaller or riskier ones.
Why is the terminal value such a large part of the result?
Because it stands for every year after the tenth. For a growing company it often represents more than half of the intrinsic value, which is why the terminal growth rate deserves the most caution.
Is this Arqon’s own valuation?
No. It is a transparent two-stage DCF you control. Arqon’s valuation grades, published on each stock page, combine several models.
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Educational tool. Results depend entirely on your inputs and are not investment advice.