Discounted Cash Flow Calculator (DCF)

Money arriving later is worth less than money in hand — by exactly the discount rate, compounded. Enter up to five years of expected cash flows and your required rate of return, and this calculator returns their present value: the DCF at the heart of every intrinsic valuation.

The Time Value of Money, Weaponised

Discounted cash flow is the present-value identity — PV = Σ CF_t ÷ (1 + r)^t — promoted from arithmetic to philosophy: an asset is worth the cash it will hand its owner, translated into today's money at a rate that prices time and risk together. Every other valuation method is a shortcut around this one (multiples are DCFs with the algebra pre-chewed), and every DCF controversy is a fight about its two inputs: the forecast cash flows, and the discount rate — the investor's required return for bearing this asset's uncertainty, cousin to the WACC of corporate finance and the hurdle rate of the project meeting. The calculator mechanises the identity for the explicit five-year window, prints each year's discounted contribution separately (the reader sees the far years shrink in the hand), and leaves the two judgements — what cash, at what rate — where they belong: in the open, argued by the human, computed by the page. Its five-year window matches the horizon over which management forecasts and analyst models pretend to knowledge; beyond it, the honest forecaster's cone of uncertainty is wider than the cash flows themselves, which is a second, epistemic reason the terminal term gets its own sceptical paragraph below.

Worked Example: Five Growing Cash Flows at 10%

The defaults: $10,000 growing by $2,000 a year to $18,000, discounted at 10%. Year by year the discount factors bite deeper: $9,090.91, $9,917.36, $10,518.41, $10,928.22 and $11,176.58 — the cash flows grow 20%-ish while their present values grow barely 5%, time's tax outrunning the growth — totalling $51,631.47 of present value against $70,000 of nominal cash. Now the sensitivity that runs every valuation argument: at an 8% discount rate the same flows are worth about $54,700; at 12%, about $48,800. A four-point argument about the rate moves the answer by more than a tenth — which is why DCFs are honestly reported as ranges, and why the calculator's rate field is labelled "your required return for this risk": the number is a judgement wearing a percentage, and the page declines to pretend otherwise.

The Terminal Value Elephant

A real company's cash does not stop at year five, and professional DCFs append a terminal value — the worth of everything after the forecast window, modelled as a perpetuity growing at g: TV = CF₅ × (1 + g) ÷ (r − g) — which routinely contributes 60–80% of the total valuation and nearly all of its mischief (let g approach r and the value explodes toward infinity, the formula's built-in scandal). This calculator deliberately prices the explicit window only, and says so in its note on every run: it is the honest core of the method, the part whose inputs a reader can defend line by line. The reader building a full valuation adds the terminal term with its own scepticism, discounts it back by (1 + r)⁵, and holds the sum at arm's length — the discipline this page's framing is designed to teach by omission.

The Reverse DCF: Asking What the Price Believes

Practitioners increasingly run the identity backwards — take the market price as given, and solve for the cash-flow growth the price implies — because a belief, once made explicit, can be argued with. The machinery is this page's run in a loop (adjust the flows until the present value matches the price), and its verdicts are bracing: prices routinely imply a decade of flawless growth for ordinary businesses, or despair for sound ones, each a tradeable disagreement with the crowd. The calculator serves the forward direction it titles; the reverse is named here because it is the forward direction's most honest critique — a DCF that cannot say what its inputs imply is a ritual, and the reader who runs both directions owns the method instead of renting it.

Related Tools

More from the Finance Calculators hub: the SIP Calculator — the same compounding pointed the other way, future value instead of present — and the Net Worth Calculator, for the personal balance sheet a DCF-valued asset joins.

Frequently Asked Questions

What discount rate should I use?

The return you require to accept this asset's risk — which practitioners build from the risk-free rate plus a risk premium (for equities, a market premium of roughly 4–6% scaled by the asset's beta in the CAPM tradition), or take as the firm's weighted average cost of capital when valuing a whole business. The calculator refuses to default you into false precision: its 10% starting figure is the long-run equity-market convention, and the worked example's sensitivity table shows why the choice deserves your argument rather than the page's. A DCF at the wrong rate is worse than no DCF, because it arrives with decimals.

What is the difference between DCF and NPV?

Net present value is this page's present value minus the price paid to acquire the flows — NPV = PV − cost — so a DCF valuation produces the PV, and an investment decision consumes it as NPV: positive, the deal clears its required return; negative, it does not. The calculator prints the PV and its note instructs the comparison; readers evaluating a specific purchase subtract the asking price from the printed figure and hold the NPV their decision actually turns on. The vocabulary matters because sellers quote values and buyers need decisions, and the subtraction between them is where the margin of safety lives.

Can cash flows be negative?

Yes — young companies and heavy-investment years often are, and the formula digests them without complaint (a negative flow discounts to a negative contribution; enter the minus sign in the year's field). What the arithmetic cannot digest is a story in which the negatives never turn: the five-year window must be a forecast the reader is willing to defend year by year, because the calculator will faithfully price a fantasy at the same precision as a fact. DCF discipline is forecast discipline; the identity merely keeps its books.

Why do far years contribute so little?

Because the discount factor (1 + r)^t grows exponentially while honest cash-flow growth does not: at 10%, a dollar in year 5 is worth 62 cents today, in year 10 about 39, in year 20 about 15. This is not cynicism but the price of time and risk stated geometrically — and it is why terminal assumptions matter so much (they smuggle the far future back in at scale) and why long-duration assets swing violently when rates move, the bond market's duration lesson in equity dress. The calculator's per-year printout makes the shrinkage visible in your own numbers, the only form in which the lesson reliably lands.

How does inflation enter?

Consistently or not at all: nominal cash flows (grown with inflation inside them) take a nominal discount rate (which also contains inflation), and real cash flows take a real rate — mixing a real forecast with a nominal rate silently taxes the valuation by the inflation rate every year. Most market practice is nominal throughout, the calculator's fields being currency amounts of their years as the labels state. The consistency rule is worth more than either convention; state yours before the first field, as the profession's post-mortems of failed valuations repeat like a catechism.

How do I sanity-check someone else's DCF?

Recompute its present value here from its own published flows and rate — if the total does not reproduce, the model hides a term (a terminal value folded in, a mid-year convention, a different year zero) and the argument can begin at the discrepancy. Then flex the rate by two points each way and the final-year flow by a fifth: a valuation that inverts its verdict under that gentle handling is an opinion with a spreadsheet attached, and should be weighted as one. The calculator's per-year printout exists for exactly this audit — five numbers, reproducible in a minute, against which any banker's deck can be held.

What counts as a cash flow here — profit, or cash?

Cash — specifically free cash flow: the money the asset or business actually hands over after the spending required to keep it alive (capital expenditure and working-capital increases come out before the flow is "free"). Accounting profit is the commonest wrong input, overstating the flow by its non-cash charges' omissions and understating it elsewhere; the practitioner's bridge runs from operating profit through depreciation added back, capex and working capital subtracted, taxes applied. The calculator takes the flows as given — garbage in, gospel out is the method's eternal failure mode — and this FAQ posts the definition at the door so the given is at least the right species of number.

Who built this method?

The mathematics descends from compound-interest tables as old as Fibonacci's Liber Abaci, and the valuation doctrine was codified by John Burr Williams in 1938 (The Theory of Investment Value — dividends discounted are the worth) and carried into practice by the Graham-and-Dodd tradition after him. The calculator is that lineage's five-year pocket edition: Williams's identity, a discount rate the reader must defend, and no terminal-value sleight of hand — the founders would have recognised both the arithmetic and the omissions as deliberate.