Discounted Cash Flow Calculator (DCF)

Estimate the present value of a stream of future cash flows using the standard DCF method. Enter a starting cash flow, growth rate, discount rate, forecast period, and terminal growth rate to get the present value of the forecast, the terminal value, total DCF value, and net present value (NPV).

Quick Facts

Formula
PV = Σ CFt / (1 + r)^t
Each year's cash flow is discounted back to today at the discount rate r.
Terminal Value
TV = CF(n+1) / (r − g)
Gordon Growth Model estimate of value beyond the forecast period; requires the discount rate to exceed the terminal growth rate.

Your Results

Calculated
PV of cash flows
-
Discounted forecast-period cash flows
PV of terminal value
-
Discounted value beyond the forecast
Total DCF value
-
PV of cash flows + PV of terminal value
Net present value (NPV)
-
Total DCF value minus initial investment

Ready

Enter your cash flow assumptions and press Calculate.

How the DCF calculator works

A discounted cash flow (DCF) analysis estimates what a stream of future cash flows is worth today, on the principle that money received later is worth less than money received now. This calculator projects a starting cash flow forward for a set number of years, discounts each year back to the present, and adds a terminal value that represents everything beyond the explicit forecast.

The formula

For each forecast year t, the cash flow CFt grows from the Year 1 cash flow at the annual growth rate g, and is discounted at the discount rate r:

PV of cash flows = Σ CFt / (1 + r)t, summed over t = 1 to n

Value beyond the forecast period is captured with the Gordon Growth (perpetuity growth) Model, using the terminal growth rate gt:

Terminal Value = CFn+1 / (r − gt), then discounted back to today as Terminal Value / (1 + r)n

Total DCF value is the sum of the discounted forecast cash flows and the discounted terminal value. Subtracting the initial investment gives the net present value (NPV): a positive NPV means the projected cash flows are worth more today than the cost of the investment at the chosen discount rate; a negative NPV means they are worth less.

Worked example

With a $500,000 initial investment, a $120,000 Year 1 cash flow growing 5% annually, a 10% discount rate, a 5-year forecast, and a 2% terminal growth rate: the five yearly cash flows ($120,000 to about $145,861) discount back to roughly $498,071 in present value. The terminal value — built from the Year 6 cash flow of about $148,778 divided by (10% − 2%) — discounts back to roughly $1,154,743. Total DCF value comes to about $1,652,814, and subtracting the $500,000 investment gives an NPV of about $1,152,814.

Choosing the discount rate

The discount rate should reflect the return required for the risk of the cash flows. For a company valuation this is often the weighted average cost of capital (WACC); for a personal or project-level decision it can be your required rate of return or opportunity cost of capital. Raising the discount rate lowers every present value in the model, so it has an outsized effect on the result — small changes in this single input can swing the total DCF value substantially.

Why terminal value usually dominates

Because the terminal value represents an indefinite stream of future cash flows, it frequently accounts for the majority of total DCF value even though it is a single number discounted from the end of the forecast period. The terminal growth rate must stay below the discount rate — a terminal growth rate at or above the discount rate makes the Gordon Growth formula produce a nonsensical (negative or infinite) result, since it implies cash flows growing forever faster than they are discounted.

Limitations to keep in mind

  • DCF results are highly sensitive to the discount rate and growth assumptions — small input changes can produce large swings in value.
  • The model assumes cash flows grow at a smooth, constant rate, which real businesses and projects rarely do exactly.
  • Terminal value assumes indefinite growth at a constant rate, an approximation that becomes less reliable the further out it is projected.

Frequently Asked Questions

What formula does this DCF calculator use?
It discounts each forecast year's cash flow back to the present with PV = CF / (1 + r)^t, sums those values, then adds a discounted terminal value calculated with the Gordon Growth Model: TV = CF(n+1) / (r - g), where r is the discount rate and g is the long-term terminal growth rate. Subtracting the initial investment from the total present value gives the net present value (NPV).
How do I choose a discount rate?
The discount rate should reflect the return an investor requires given the risk of the cash flows, often approximated with a company's weighted average cost of capital (WACC) or a personal required rate of return. A higher discount rate reduces the present value of future cash flows because it assumes a bigger opportunity cost for waiting.
What is terminal value and why does it matter?
Terminal value estimates the worth of all cash flows beyond the explicit forecast period, assuming they grow at a constant rate forever. Because it is often discounted back only a few years, terminal value frequently makes up the majority of a DCF's total value, so the terminal growth rate assumption deserves as much scrutiny as the near-term forecast.
What are the limits of a DCF valuation?
A DCF is only as reliable as its inputs: small changes in the discount rate or growth assumptions can swing the result significantly, and the model assumes cash flows and growth rates are predictable, which they rarely are with precision. Use it as one estimate among several, not a guaranteed value, and stress-test the key assumptions before relying on the output.

Related calculators