Free founder tool
DCF calculator: discounted cash flow valuation
A discounted cash flow (DCF) valuation estimates what a business is worth today from the cash it is expected to generate in the future, discounted back at a rate that reflects risk and the time value of money.
- Enterprise value
- ₹14.49 Cr
- From 5 years of cash flow
- ₹4.74 Cr
- From terminal value
- 67%
| Year | Cash flow | Present value |
|---|---|---|
| 1 | 1 | 0.87 |
| 2 | 1.2 | 0.91 |
| 3 | 1.44 | 0.95 |
| 4 | 1.73 | 0.99 |
| 5 | 2.07 | 1.03 |
| Terminal | 19.6 | 9.75 |
How it works
The calculator projects five years of free cash flow at your growth rate, discounts each year back to today, and adds a terminal value for all the years after, using the Gordon growth formula: final year cash flow × (1 + terminal growth) ÷ (discount rate − terminal growth), also discounted to today.
Example: ₹1 crore of free cash flow growing 20% a year, a 15% discount rate and 4% terminal growth. The five years are worth about ₹4.74 crore today and the terminal value about ₹9.75 crore, for an enterprise value of about ₹14.49 crore.
Choosing the inputs
- Discount rate: higher for riskier businesses. Investors in early startups expect far higher returns than the 10–15% often used for established companies.
- Terminal growth: should be no higher than long-run economic growth; small changes move the result a lot.
- Cash flow: use free cash flow (operating cash flow minus capital spending), not profit.
Why DCF suits mature businesses best
In the example, two-thirds of the value sits in the terminal value, and for young startups that share is often even higher. When most of the value depends on years far in the future, small changes in assumptions swing the result widely, which is why early-stage startups are usually valued with multiples or round pricing instead.
Related reading: Pre-money vs post-money valuation, with examples and 409A valuation explained, and India's ESOP equivalent.
Frequently asked questions
- What discount rate should I use?
- It reflects risk: a stable listed company might use 8–12%, while early-stage venture investments are judged against much higher targets. Try several rates to see the range.
- Is enterprise value the same as equity value?
- No. Equity value is enterprise value minus debt plus cash.
- Why does the calculator stop working?
- The discount rate must be higher than the terminal growth rate, or the formula breaks down.
- What is free cash flow?
- Cash from operations minus capital spending: the money a business generates that could be paid to its owners and lenders without harming operations.
- How sensitive is a DCF to its inputs?
- Very. In the example, moving the discount rate from 15% to 13% raises the value by roughly a quarter. Show a range of values, not one number.
More founder calculators
All calculators →Results are estimates for planning and learning, based only on the numbers you enter. They are not financial, tax or investment advice.