DCF Valuation Calculator — Enterprise Value

A DCF (Discounted Cash Flow) valuation computes enterprise value as the present value of projected free cash flows plus a terminal value. Enter your current free cash flow, growth rate, WACC and terminal growth below — the calculator projects 5 years and applies the Gordon-Growth formula.

A discounted cash flow valuation rests on one idea: a dollar next year is worth less than a dollar today, so future cash flows must be discounted to a present value before they can be summed. Because a business is expected to operate long past any forecast window, a DCF splits value into an explicit forecast period and a terminal value that captures everything after it. The discount rate that ties the two together is WACC — the higher it is, the lower the valuation.

EV = Σ FCFt ÷ (1+WACC)^t + [FCF₅ × (1+g) ÷ (WACC − g)] ÷ (1+WACC)^5

Worked example (default inputs)

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The formula, and why timing changes everything

A discounted cash flow valuation rests on one idea: a dollar arriving in five years is worth less than a dollar today, because today's dollar can be invested. So each future free cash flow is divided by (1 + discount rate) raised to the number of years away, and the present values are summed. Enterprise value = Σ [FCFₜ ÷ (1 + WACC)ᵗ] plus a discounted terminal value for everything beyond the explicit forecast. The further out a cash flow sits, the harder the denominator shrinks it — which is why near-term forecasts carry more weight than distant ones, and why terminal value needs care.

A worked five-year example

Project free cash flow starting at $1.0M and growing 10% a year, discounted at 12%. The five years' present values sum to about $3.6M. In year five, a Gordon-Growth terminal value at 2.5% perpetual growth is FCF₅ × 1.025 ÷ (0.12 − 0.025), discounted back — roughly $9.5M of present value. Enterprise value lands near $13M, with the terminal value carrying the majority. Subtract net debt and you have equity value.

The terminal value problem

Because the terminal value routinely represents 60–80% of a DCF's total, the valuation is really an argument about the end state, not the forecast years. Two methods compute it — the Gordon Growth perpetuity and an exit EV/EBITDA multiple — and the discipline is to run both. When the perpetuity value implies an exit multiple no buyer would pay, the growth assumption is too rich; when the multiple towers over the intrinsic figure, the market is pricing something the forecast does not show. Michael Mauboussin's work makes the deeper point that every valuation method, including a multiple, is a discounted cash flow in disguise — the assumptions are just buried where a multiple hides them.

References: Damodaran on DCF valuation; and M. Mauboussin, “Everything Is a DCF Model” (Morgan Stanley, 2021).

Case study: how sensitive is the answer?

A single DCF number implies a false precision the inputs cannot support. The honest output is a range. Take the $13M base case and flex the two assumptions that move it most — WACC and terminal growth — across a grid.

The value swings from about $11M to $16M — a 45% range — with no change to the operating forecast at all. Presenting that grid, rather than a single figure, is what separates a credible valuation from a spuriously precise one.

What DCF gets wrong

The method is only as good as its inputs, and it has three recurring failure modes. Forecasting error: five-year projections are hard, and small compounding differences swing the terminal value. Terminal-value dominance: when 70%+ of value sits in a perpetuity, the DCF is mostly an assumption about infinity. And behavioural anchoring: analysts often reverse-engineer assumptions until the DCF matches a number they already had in mind. None of these are reasons to abandon the DCF — they are reasons to show the range, cross-check against multiples, and keep the assumptions visible.

How professionals present a DCF

A DCF handed over as a single number invites the wrong argument — a haggle over the answer instead of the assumptions. Experienced analysts present it differently: the explicit forecast with its drivers visible, the terminal value shown both ways (perpetuity and exit multiple) with the implied cross-check, and a sensitivity grid rather than a point. They also state what the valuation needs to be true — the growth and margin the business must actually deliver to justify the number — so the reader can judge the plausibility rather than the arithmetic. The arithmetic is never the hard part; the assumptions are, and a good presentation puts them where they can be challenged.

When to use DCF versus multiples

Use a DCF when cash flows are forecastable and you want an intrinsic value independent of market mood — infrastructure, stable operating businesses, anything with a long asset life. Lean on multiples when comparables are clean and speed matters, or as the cross-check on a DCF. Best practice triangulates: an intrinsic DCF and a market-based multiple should land in a similar range, and the gap between them is itself information.

Common DCF mistakes to avoid

Four errors account for most bad DCFs. Mismatching the cash flow and the rate — discounting levered cash flow at WACC, or unlevered at the cost of equity — double-counts the debt and quietly skews the answer. Setting terminal growth above long-run GDP implies the business eventually becomes larger than the economy, which cannot be right. Ignoring the mid-year convention, which assumes cash arrives through the year rather than in a lump at year-end, modestly understates value on every line. And reverse-engineering the assumptions until the DCF matches a number you already had in mind turns a valuation tool into a confirmation exercise. Each is avoidable, and each is worth an explicit check before anyone signs off on the output.

From the calculator to a full model

This calculator runs the five-year projection and Gordon-Growth terminal value from a handful of inputs. A complete valuation links the DCF to a three-statement model, builds WACC from CAPM, cross-checks the terminal value against an exit multiple, and produces the two-way sensitivity grid automatically — which is exactly what the generated Excel model does, free for a 3-year build.

Frequently asked questions

Why must WACC exceed terminal growth?

The Gordon-Growth formula divides by (WACC − g); if growth matched or exceeded the discount rate, value would be infinite. Terminal growth should approximate long-run GDP/inflation, typically 2–3%.

What share of value should the terminal value be?

Often 50–75% of enterprise value for a 5-year forecast. If it is much higher, extend the explicit forecast — EasyFinancialModels supports up to 25-year horizons.

Is enterprise value the same as equity value?

No. Equity value = enterprise value − net debt (debt minus cash). The generated Excel model computes both.

How many years should the explicit forecast be?

Five to ten years is standard — long enough to reach a steady state, short enough to forecast credibly. Asset-heavy businesses justify longer horizons; EasyFinancialModels supports up to 25 years.

What share of DCF value should the terminal value be?

Commonly 60–80% for a five-year forecast — that is normal, not a red flag. But if it climbs above roughly 80%, extend the explicit forecast so more of the value rests on modelled years rather than a perpetuity, and always cross-check the implied exit multiple against comparable companies.

Why must WACC be greater than the terminal growth rate?

The Gordon-Growth terminal value divides by (WACC − g). If growth approached or exceeded the discount rate, the denominator would collapse and imply infinite value — a classic error. Keep terminal growth at or below long-run GDP, typically 2–3%.

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