DCF Calculator - Stock Valuation & Intrinsic Value

DCF (Discounted Cash Flow) is a valuation method that estimates the intrinsic value of a business by projecting its future free cash flows and discounting them back to the present using the Weighted Average Cost of Capital (WACC) as the discount rate.

The core principle: money today is worth more than money tomorrow (time value of money). A business is only worth the present value of all the cash it can generate for its owners over its lifetime.

DCF Formula: Intrinsic Value = Σ [FCF_t / (1 + WACC)^t] + Terminal Value / (1 + WACC)^n

Free Cash Flow (FCF): Cash generated by the business after capital expenditures. Found in the cash flow statement: Operating Cash Flow – Capex.

Growth Rate: Estimated annual FCF growth during the projection period. Use conservative estimates — most businesses don't sustain 20%+ growth.

Terminal Growth Rate: Long-term sustainable growth rate after the projection period. Should be close to GDP growth rate (5–7% for India).

Discount Rate (WACC): Risk-adjusted required rate of return. Typically 8–12% for large Indian companies, 12–15% for mid-caps.

Projection Period: Usually 5–10 years. Beyond that, use terminal value.

For Indian stock analysis, typical WACC ranges:

- Large-cap, high-quality: 8–10%

- Mid-cap, moderate risk: 10–12%

- Small-cap, higher risk: 12–15%

Terminal growth rate for India: 5–7% (aligned with India's nominal GDP growth).

Common mistakes in DCF: Using overly optimistic growth rates, ignoring debt in enterprise value calculation, not adjusting for off-balance sheet liabilities. DCF should be used as a range rather than a precise number — vary your assumptions to get a valuation band.