What is a Discounted Cash Flow (DCF) Model?

A Discounted Cash Flow (DCF) model estimates the intrinsic value of a business by projecting its future free cash flows and discounting them back to today. The core idea is that money in the future is worth less than money today, so we adjust future cash flows using a required rate of return (discount rate).

When is a DCF Used?

DCF models are most effective for:

• Stable, cash-generating companies
• Businesses with predictable margins
• Mature technology firms
• Consumer staples & durable franchises
• Long-term compounders

What This Model Assumes

• FCF TTM: Free Cash Flow calculated from the last 4 quarters.
• 5-Year Growth: Your selected growth rate applied annually.
• Discount Rate: 10% required return assumption.
• Terminal Growth: 2.5% perpetual growth beyond year 5.
• Enterprise Value: Present value of projected FCF + terminal value.
• Intrinsic Value per Share: Enterprise value divided by diluted shares.

This simplified DCF assumes no adjustments for net debt or excess cash. More advanced versions subtract net debt to derive equity value.

The difference between intrinsic value and current market price represents theoretical upside or downside based on your assumptions.