Stock Valuation using Discounted Cash Flows

Determine what a stock is worth. This tool discounts future cash flows to their present value using both Earnings Per Share (EPS) and Free Cash Flow (FCF) to arrive at the intrinsic value of a stock.
Find Intrinsic Value using EPSFind Intrinsic Value using FCF

Example Valuations

Example Valuation using Earnings Per Share

Example Valuation using Free Cash Flow

Key Valuation Concepts Used

Monte Carlo Simulation

Thousands of iterations with varying inputs to model uncertainty in valuation parameters

Earnings Per Share

Portion of a company's profit allocated to each outstanding share of common stock

Free Cash Flow

Cash generated by a company after accounting for capital expenditures

Growth Rate Distribution

Log-normal distribution skewed towards moderate growth

Reverse Discounted Cash Flow

Calculate the implied growth rate based on market expectations

Growth Decay

Natural declination of growth rates over time to more sustainable levels

Mathematical Foundation

Core Formulas:
Present Value=Future Value(1+r)nPresent\ Value = \dfrac{Future\ Value}{(1 + r)^n}
Growth Rate∼LogNormal(μ,σ)Growth\ Rate \sim LogNormal(\mu, \sigma)
Terminal Value=Future Value⋅1+gr−gTerminal\ Value = Future\ Value \cdot \dfrac{1 + g}{r - g}
Implied Growth Rate=tGR+(iGR−tGR)⋅exp⁡(−dF⋅(n−1))Implied\ Growth\ Rate = tGR + (iGR - tGR) \cdot \exp(-dF \cdot (n - 1))
Where:
r = discount rate
g = growth rate
n = number of years
μ = mean of log growth
σ = standard deviation
tGR = terminal Growth Rate
iGR = initial Growth Rate
dF = decay Factor