Valuation Inputs
Use a three stage discounted cash flow approach with a fade period.
Example Data Table
| Company | Starting FCF | High Growth | High Growth Years | Fade Years | Terminal Growth | Discount Rate | Cash | Debt | Shares | Intrinsic Value Per Share | Margin Safety Price |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Sample Company | $500,000,000 | 10% | 5 | 5 | 3% | 9% | $200,000,000 | $150,000,000 | 500,000,000 | $25.63 | $19.22 |
Formula Used
- Projected free cash flow: FCFt = FCFt-1 × (1 + gt)
- Fade growth rate: gt moves linearly from the high growth rate to the terminal growth rate across the fade years.
- Present value of each year: PVt = FCFt ÷ (1 + r)t
- Terminal value: TV = FCFn × (1 + g) ÷ (r − g)
- Enterprise value: EV = Sum of forecast present values + discounted terminal value
- Equity value: Equity Value = Enterprise Value + Cash and Investments − Total Debt
- Intrinsic value per share: Equity Value ÷ Shares Outstanding
- Margin of safety price: Intrinsic Value Per Share × (1 − Margin of Safety)
How to Use This Calculator
- Enter the company name, currency symbol, and current market price for comparison.
- Input the latest annual free cash flow as your starting value.
- Set a high growth rate and choose how many years it should last.
- Add fade years to gradually reduce growth toward a stable terminal rate.
- Choose a discount rate that reflects required return and business risk.
- Enter cash, debt, shares outstanding, and your desired margin of safety.
- Press the calculate button to display the report above the form.
- Download the results as CSV or PDF for research notes.
FAQs
1. What does intrinsic value mean?
Intrinsic value is an estimate of what a business is worth based on future cash it can generate, adjusted for risk, debt, cash, and shares outstanding.
2. Why does the calculator use discounted cash flow?
Discounted cash flow focuses on business fundamentals. It values future cash flows in today’s money, which helps investors compare estimated worth against market price.
3. What is the fade period?
The fade period slowly moves growth from an optimistic early stage toward a mature long-run rate. This usually produces more realistic valuations than using one fixed rate.
4. Why must discount rate exceed terminal growth?
The terminal value formula divides by discount rate minus terminal growth. If growth equals or exceeds discount, the formula becomes unstable and produces unrealistic output.
5. Should I use free cash flow to equity or firm?
This layout works best with free cash flow to the firm, then adjusts with cash and debt to reach equity value. Stay consistent with your inputs.
6. How should I choose a discount rate?
Use a rate that reflects business quality, leverage, economic risk, and your required return. Many investors base it on weighted average cost of capital.
7. What does margin of safety price show?
It lowers the intrinsic value by your chosen safety percentage. This gives a more conservative entry price when assumptions might prove too optimistic.
8. Can I rely on one valuation alone?
No. Intrinsic value depends on assumptions. Compare multiple scenarios, read filings, test sensitivity, and pair valuation with qualitative analysis before investing.