Intrinsic Value Calculator (DCF)
Intrinsic value is what a business is worth based on the cash it will produce, discounted back to today. This calculator runs the classic two-stage model: earnings grow at a near-term rate for years 1–5, fade to a mature rate for years 6–10, and a terminal value captures everything beyond, growing at a perpetual rate below your discount rate.
It is deliberately simple — one earnings input, three growth assumptions, one discount rate. That is the point: a valuation you can interrogate beats a 40-line model you can't. Change one assumption at a time and watch what the value actually depends on.
How it works
- Years 1–5 grow EPS at the initial rate; years 6–10 at the fade rate; each year's EPS is discounted at your discount rate.
- Terminal value = year-10 EPS × (1 + terminal growth) ÷ (discount − terminal growth), discounted back 10 years.
- Intrinsic value = sum of the ten discounted years + discounted terminal value; compare with the market price for upside/downside.
Frequently asked questions
What discount rate should I use for Indian stocks?
Your required return. Common practice: 10-year G-sec (~7%) plus an equity risk premium of 4–6%, landing at 11–13% — or use the CAPM calculator to derive it from beta. A higher rate is a demand for more compensation: quality, predictable businesses earn a lower rate than volatile ones.
Why does the value swing so much when I nudge the inputs?
Because most of a growing company's value sits in distant years, small changes to growth or discount rates compound across the decade and the terminal value. That sensitivity is information: if a stock is only cheap at 16% growth and an 10% discount rate, the margin of safety is the assumption, not the price.
Should I use EPS or free cash flow?
Conceptually, free cash flow (or Buffett's 'owner earnings') is the right numerator; EPS is a workable proxy for stable businesses where earnings convert to cash. For capex-heavy or working-capital-hungry companies, EPS overstates distributable cash — haircut the input or use FCF per share directly.
The terminal growth field won't accept a rate near my discount rate — why?
The Gordon terminal value divides by (r − g); as g approaches r the value explodes toward infinity, which is a mathematical artefact, not an insight. Keep terminal growth at or below long-run nominal GDP growth (~4–6% for India) — no company outgrows the economy forever.
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This tool is an educational estimate, not investment or tax advice. Rates and rules change — verify current figures and consult a professional before acting.