Published 2025-09-15 · Last updated 2025-12-01 · Reviewed by Valzura Editorial Team
DCF Calculator
Turn projected free cash flow into a present-day business value.
A discounted cash flow (DCF) valuation estimates what a business is worth today by projecting its future free cash flow and discounting each year back to present value at a rate that reflects its risk. This calculator projects five years of cash flow from your starting figure and growth rate, adds a Gordon growth terminal value for everything beyond year five, and discounts it all at your chosen rate. The result is an enterprise value: the present value of the cash the business is expected to generate.
Annual cash the business generates after operating costs and reinvestment.
How fast free cash flow grows during the projection period.
The weighted average cost of capital; 15 to 30% is common for small firms.
Perpetual growth after year 5; 2 to 3% is the standard assumption.
Enterprise Value (DCF)
$1,303,452
The present value of the projected cash flows plus the terminal value.
Projected free cash flow
| Year | Free cash flow | Present value |
|---|---|---|
| 1 | $210,000 | $175,000 |
| 2 | $220,500 | $153,125 |
| 3 | $231,525 | $133,984 |
| 4 | $243,101 | $117,236 |
| 5 | $255,256 | $102,582 |
Inside the discounted cash flow calculator
The model starts from free cash flow, the cash the business generates after operating costs and reinvestment, and grows it for five projected years. Each projected year is divided by (1 + r) raised to the year number, where r is the discount rate that prices the business's risk; you can derive yours with the WACC calculator. Everything beyond year five is compressed into a terminal value using the Gordon growth model, then discounted back alongside the explicit years.
A worked example: a 200,000 dollar cash flow business
Start with 200,000 dollars of free cash flow growing 5 percent a year, a 20 percent discount rate, and 3 percent terminal growth. The five projected cash flows run from 210,000 dollars in year one to about 255,256 dollars in year five, and their combined present value is roughly 682,000 dollars. The terminal value, year five's cash flow grown once more and divided by the 17 point spread between the rates, is about 1.55 million dollars, worth roughly 621,500 dollars today. Total enterprise value: about 1.30 million dollars, with the terminal piece contributing just under half.
Terminal value: where most of the value hides
The terminal value routinely carries half or more of a valuation, which makes its single assumption, the perpetual growth rate, the most powerful number in the model. Keep it at or below long-run economic growth, around 2 to 3 percent; anything higher claims the business will eventually outgrow the entire economy. The calculator refuses to run when terminal growth meets or exceeds the discount rate, because the Gordon growth denominator collapses and the formula stops meaning anything.
The assumptions that make or break the model
The discounted cash flow method is only as honest as its inputs. In the example above, nudging the discount rate from 20 down to 17 percent lifts the value by roughly a fifth, and small growth changes compound the same way. Professionals defend against this by normalizing the starting cash flow, grounding growth in the company's track record, and testing a range of rates rather than a single point. Treat any one-scenario output, including this one, as the center of a range.
From a quick model to a defensible valuation
A single-method estimate is a starting point, not a conclusion. The full Valzura report, a one-time 199 dollar valuation report, runs a complete discounted cash flow analysis on your normalized financials alongside five other methods, then reconciles them into a defensible range with industry benchmarks. To see where you stand first, get a free valuation estimate with your own revenue and earnings.
Frequently Asked Questions
What discount rate should I use in a DCF?
Use the weighted average cost of capital for the business, which blends the cost of equity with the after-tax cost of debt. Large public companies often land between 6 and 10 percent, while small private businesses typically warrant 15 to 30 percent once size and company-specific risk are added. The higher the rate, the lower the valuation.
What is terminal value in a DCF?
Terminal value captures all cash flows beyond the explicit projection period. It is usually estimated with the Gordon growth model: the following year's cash flow divided by the difference between the discount rate and a perpetual growth rate. It often accounts for half or more of the total value, so the terminal growth assumption deserves as much scrutiny as the projections themselves.
Why must the terminal growth rate be lower than the discount rate?
The Gordon growth formula divides by the discount rate minus the growth rate, so if growth meets or exceeds the discount rate the denominator reaches zero or turns negative and the formula produces an infinite or meaningless value. Practically, no business grows faster than its discount rate forever. A rate of 2 to 3 percent, near long-run economic growth, is the standard assumption.
Is a DCF reliable for valuing a small business?
It is one of the most rigorous methods, but it is sensitive to assumptions: small changes in growth or the discount rate move the answer significantly. That is why professional appraisals run a discounted cash flow analysis alongside market multiples and asset approaches, then reconcile them into a defensible range rather than trusting a single model.
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