1. What is the DCF Model?

The Discounted Cash Flow (DCF) model estimates a stock's intrinsic value by projecting its future cash flows and discounting them back to present value. It helps investors determine whether a stock is undervalued or overvalued.

2. How Does the Calculator Work?

The calculator uses the DCF formula:

Where:

• \( IV \) — Intrinsic value (USD/share)
• \( \text{Future Cash Flows} \) — Projected free cash flows (USD)
• \( \text{Discount Rate} \) — Required rate of return (decimal)
• \( t \) — Time period in years

Explanation: The model discounts each future cash flow back to present value, accounting for the time value of money.

3. Importance of Intrinsic Value

Details: Intrinsic value helps investors make informed decisions by comparing a stock's calculated value to its market price. It's fundamental to value investing strategies.

4. Using the Calculator

Tips: Enter projected free cash flows in USD, discount rate as decimal (e.g., 0.08 for 8%), and time period in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How do I estimate future cash flows?
A: Use historical growth rates, analyst projections, or company guidance. Typically 5-10 year projections are used.

Q2: What discount rate should I use?
A: Often the weighted average cost of capital (WACC) or your required rate of return. 8-10% is common for stable companies.

Q3: What are limitations of DCF?
A: Sensitive to input assumptions, doesn't account for market sentiment, and challenging for companies with unpredictable cash flows.

Q4: Should terminal value be included?
A: This simplified calculator doesn't include terminal value. For full analysis, add terminal value to final year's cash flow.

Q5: How often should I recalculate?
A: Re-evaluate when company fundamentals change, new financials are released, or market conditions shift significantly.