Data & spreadsheets · DCF Calculator
How a DCF Calculator Turns Cash Flow Forecasts Into a Present Value
· How it works
dcf valuation cash-flow
A walk through the pipeline inside a discounted cash flow model: from the cash flows and rates you type in, to discount factors, terminal value and one present value figure. Written for readers who want to understand the output rather than just read it.
A number comes out, and you cannot explain it — why a DCF result is meaningless until you can trace each step that produced it
A DCF output has little meaning if you cannot reconstruct it from the numbers entered. The arithmetic takes forecast free cash flow, assigns less weight to later payments, represents years after the explicit forecast with a terminal value and adds the present values. It does not measure how well the forecast describes a real business. If two models disagree, inspect the assumptions and discounting convention before comparing only their final number.
The inputs a DCF needs from you — forecast cash flows, a horizon, a discount rate and a long-term growth assumption, and why none of them can be looked up
You supply a starting free cash flow, a forecast horizon, growth stages, a discount rate and either perpetual growth or an exit-multiple terminal method. The ToolAcre calculator does not fetch a share price, a treasury yield or company financial statements. Its cash flows are unlevered FCFF: the discounted sum is initially an enterprise value. To estimate equity value the engine subtracts net debt, and per-share value also requires the share count you provided. Omitting that bridge would call an enterprise amount a share price.
Discount factors: shrinking each year's cash flow — how dividing by (1+r)^t is applied year by year and why later years count for less
For an end-of-year convention, year t has factor 1/(1+r)^t. At r=10%, year-one cash flow of 100 contributes 100/1.1 = 90.91 today; year five contributes 100/1.1^5 ≈ 62.09. The engine constructs a row for each year with forecast FCF, exponent, factor and present value. A mid-year convention changes the exponents and therefore the result, even with identical cash flows, so compare like with like rather than treating one total as a correction of the other.
Terminal value: the years after the forecast ends — how a perpetuity formula stands in for everything beyond the horizon and is discounted back as a lump sum
The explicit forecast stops; the business model may not. Under a Gordon-growth terminal assumption, terminal value at the horizon equals next year’s FCF divided by r−g. If the fifth-year FCF is 100, long-run growth g=2.5% gives next-year FCF 102.5 and terminal value 102.5/(0.10−0.025) = 1366.67 in year-five money. Discount that lump sum back once more by 1.1^5 to get ≈848.59 today. The tool refuses r≤g rather than dividing by zero or accepting an economically nonsensical negative terminal value.
Adding the pieces together — present value of the explicit forecast plus present value of the terminal value, which is the headline figure
The headline enterprise value is the sum of the discounted explicit years and discounted terminal value, not the undiscounted terminal number. Changing the growth assumption affects the terminal value especially strongly because it appears in the denominator. The result may show what proportion rests on terminal assumptions; when that proportion dominates, the conclusion deserves a sensitivity check. Enterprise value becomes equity value only after accounting for the debt and cash you entered. A comparison with a share price you typed is arithmetic, not an investment recommendation.
Worked example — a five-year forecast with round numbers discounted line by line so every intermediate figure can be checked by hand
For a deliberately simple five-year example, hold FCF at 100 each year, use 0% forecast growth, 10% discount rate, 2.5% terminal growth and end-of-year timing. The five present values are 90.91, 82.64, 75.13, 68.30 and 62.09, summing to 379.08. Terminal value is 1366.67 at year five and 848.59 today, producing an enterprise value near 1227.67. Enter zero net debt to see the same equity value; any per-share number additionally divides by the share count. These are illustrative arithmetic inputs, not a claim about an actual company.
What this does not cover — the calculator fetches no market data, does not estimate your discount rate and says nothing about whether any real company is cheap or dear
The calculator supplies no market data and cannot choose a justified discount rate or forecast for you. Taxes, dilution, debt maturities and an exit-multiple judgement need separate analysis; a model’s mechanical precision is not evidence that its assumptions are right. DCF is particularly sensitive to what happens after the explicit forecast. Check the sensitivity view and change a single input to see which line moves. This page is an explanation of arithmetic, not financial advice.
A DCF is arithmetic on assumptions, and the tool shows the arithmetic — how the ToolAcre DCF Calculator lets you change one input and watch the present value respond
A DCF calculator discounts cash flows that you projected and exposes the pieces so the output can be audited. ToolAcre keeps the calculation in the browser and labels the terminal method, net-debt bridge and optional comparison with a price you supplied. Reproduce the round-number example, then vary r by one percentage point to see why an unexplained headline valuation should never be trusted on its own.