Discounted Cash Flow (DCF)

What is a Discounted Cash Flow (DCF)?

Discounted Cash Flow (DCF) is a valuation method used to estimate the fair value of a company based on the expected future cash flows. This methods tries to estimate the present value of expected money generated in the future.

The key idea behind DCF is that 1000$ in one year is worth less than 1000$ now. Therefore, the value of 1000$ next year must be discounted to have a lower present value. We need to use a discount factor to get the present value, which represent how much these $1000 in the future should be discounted.

For example, $1000 next year would be worth $952 in the present using a 5% discount rate.

How to calculate DCF?

In order to calculate the present value of future cashflows, the DCF tries to actualize all the future cashflows to their present value, assuming a certain rate of return. The present value of the security is then the sum of all the future cash flows actualized to their present value.

Discounted Cash Flow (DCF) Formula

The formula for Discounted Cash Flow (DCF) is the sum of all future cash flows, actualized to the present value using a discount rate.

DCF = CF1/(1 + r)^1 + CF2/(1 + r)^2 + CF3/(1 + r)^3 + ...

DCF Calculator

Beanvest has a built-in DCF Calculator that will help you make the DCF calculation easily for stocks.

DCF Calculator

The discounted cash flow calculator saves you time because it automatically pulls data for Free Cash Flows from previous years. You can select a cash flow growth scenario, and the tools will make the projections and automatically calculate the fair value of the stock you selected.

You can create an account below to use this free DCF calculator.

Start tracking your investments today

14-day Premium trial, 100% free after. No credit card required

No credit card required. Try Premium for free for 14 days. Cancel anytime