Business Valuation - Discounted Cash Flow Calculator
Estimate a business’s value by discounting its projected future cash flows — plus a terminal value — back to today at your required rate of return.
A worked example
Running this tool on current national benchmarks (Federal Reserve / Freddie Mac via FRED (St. Louis Fed)) — swap in your own numbers to see how the result moves.
- Annual cash flow (year 1)
- $200,000
- Annual cash flow growth
- 5%
- Discount rate (required return)
- 12%
- Projection period (years)
- 5
- Terminal growth rate
- 2%
discounting 5 years of cash flow at 12.00%
- PV of projected cash flow$788,010
- PV of terminal value$1,407,010
- Enterprise value$2,195,020
How the estimated business value changes with annual cash flow (year 1)
Holding the other inputs at the example above, here is how the result moves as annual cash flow (year 1) changes.
| Annual cash flow (year 1) | Estimated business value | PV of projected cash flow |
|---|---|---|
| $100,000 | $1,097,510 | $394,005 |
| $200,000 | $2,195,020 | $788,010 |
| $400,000 | $4,390,041 | $1,576,020 |
| $800,000 | $8,780,082 | $3,152,041 |
The math behind it
The calculator projects cash flow forward from year one, growing it each year by your growth rate, and discounts each year's amount back to today at your required rate of return. Those discounted figures sum to the present value of the projection period. It then estimates a terminal value — the business's worth beyond the forecast — using the Gordon growth formula: the final year's cash flow grown one more year, divided by the discount rate minus the terminal growth rate. That terminal value is itself discounted back to today. Enterprise value is the present value of the projection plus the present value of the terminal value.
Assumptions & limits
- Cash flow grows at a single constant rate through the projection period, then at a lower perpetual terminal rate forever.
- The terminal value uses the perpetuity growth (Gordon) method and requires the discount rate to exceed the terminal growth rate; otherwise it is treated as zero.
- The discount rate stands in for your required return or weighted average cost of capital — a higher rate lowers the valuation.
- The terminal value often makes up the majority of the total, so small changes to the discount and terminal-growth inputs move the answer a lot.
- This is a cash-flow-based enterprise value; it does not net out debt to reach equity value, nor add non-operating assets.
Common questions
Why does the terminal value make up so much of the valuation?
A DCF only forecasts a handful of years in detail, but a healthy business is assumed to keep generating cash long after. The terminal value captures all of that future in one figure, so it commonly accounts for more than half of the total. That is why the terminal growth and discount rate assumptions deserve the most scrutiny.
What discount rate should I use?
The discount rate reflects the return you require for the risk taken — often approximated by a weighted average cost of capital. Stable, established businesses might use something in the low double digits; riskier or early-stage ones justify a higher rate. A higher discount rate produces a lower valuation, because future dollars are worth less today.
What is the implied multiple the calculator shows?
It is the estimated value divided by year-one cash flow — a sanity check expressed the way buyers often talk, as a multiple of earnings. If your DCF implies a multiple wildly above or below what comparable businesses actually sell for, revisit your growth and discount-rate assumptions before trusting the number.
Is DCF the only way to value a business?
No. DCF is one lens; buyers also use comparable-sales multiples (a multiple of revenue or EBITDA) and asset-based methods. Each can give a different answer. DCF is most useful when future cash flows are reasonably predictable, and least reliable for volatile or pre-revenue businesses.