DCF Model: Calculate Value and Test Your Assumptions
The model below is loaded with a worked example: $100m to $140m of free cash flow over five years, a 10% cost of capital and 3% long-run growth, which values the business at $1,726.79m and the equity at $31.54 per share. Change any figure and every output recalculates.
| WACC | 2.00% | 2.50% | 3.00% | 3.50% | 4.00% |
|---|---|---|---|---|---|
| 8.00% | $38.86 | $41.97 | $45.72 | $50.29 | $56.01 |
| 9.00% | $32.72 | $34.90 | $37.44 | $40.45 | $44.05 |
| 10.00% | $28.12 | $29.71 | $31.54 | $33.64 | $36.09 |
| 11.00% | $24.55 | $25.75 | $27.11 | $28.65 | $30.40 |
| 12.00% | $21.69 | $22.63 | $23.67 | $24.83 | $26.14 |
What could change this valuation?
Reported developments on the left. The assumption they invite you to re-examine, and the recalculated result, on the right. The size of each change is your judgement.
Policy rates move higher across the curve
Teaching example · Used when no tracked development maps to a valuation assumption.
Cost of capital
Only part of a policy move reaches a company's weighted cost of capital. The pass-through depends on the debt mix, refinancing schedule and equity risk premium, so the size below is your judgement, not an arithmetic consequence.
Long-run growth expectations are revised down
Teaching example · Used when no tracked development maps to a valuation assumption.
Terminal growth
Terminal growth should stay at or below long-run nominal economic growth. Small revisions here move most of the value because the terminal period carries most of it.
Input costs rise and are not passed to customers
Teaching example · Used when no tracked development maps to a valuation assumption.
Forecast free cash flow
Margin pressure shows up in the forecast period rather than the discount rate. Check whether the company has repriced before assuming it cannot.
Capital spending steps up ahead of revenue
Teaching example · Used when no tracked development maps to a valuation assumption.
Forecast free cash flow
Spending ahead of revenue lowers near-term free cash flow without necessarily changing the terminal value. Whether it raises later cash flow is the question worth answering.
Keep researching this company
A model is a starting point. The equity valuation workspace pulls the filed statements, the current price and the segment economics for a specific company, keeps your assumptions attached to the work, and flags the developments that bear on them so the model gets revisited when the evidence moves rather than when you happen to look.
Build a DCF model for your companyWhat this model calculates
Free cash flow to the firm is discounted at the weighted average cost of capital using year-end discounting. The terminal value is a perpetuity on the final forecast year. Enterprise value is the sum of the discounted forecast and the discounted terminal value; excess cash is added and debt subtracted to reach equity value, which is divided by the diluted share count.
Choosing between the two modes
Quick calculation takes free cash flow directly, which suits a company whose cash flow you have already built elsewhere. The operating model derives cash flow from revenue, growth, margin, tax, depreciation, capital expenditure and working capital, which makes the drivers explicit. The two modes are never combined: whichever is selected supplies the cash flows, and the other is ignored.
Reading the sensitivity table
The grid recalculates value per share across a range of discount rates and terminal growth rates. Cells where growth meets or exceeds the discount rate show "n/m" because the perpetuity has no finite answer there. A wide spread across the grid means the answer is carried by the assumptions rather than by the forecast.
How much of the value is terminal
The model reports the terminal value's share of enterprise value. Above roughly two-thirds, the valuation is mostly a statement about the perpetuity assumption. That is not automatically wrong — it is normal for a durable business — but it should be said out loud before the per-share number is quoted.
Comparing with the market price
Enter a price and the model shows the difference against it, with the date you entered it. A gap is a question, not a conclusion: either the market is discounting the same cash flows at a different rate, or it expects different cash flows. The sensitivity table shows which explanation the gap is consistent with.
Download the Excel model
The download button above the sensitivity table produces a workbook built from your current assumptions, with Inputs, Forecast, Valuation, Sensitivity and Sources sheets. The cells carry live formulas, not pasted results, so editing an input in Excel recalculates the valuation there too. No sign-in is required.