The Discounted Cash Flow (DCF) model is a fundamental valuation method that estimates the value of an investment based on its expected future cash flows. By discounting these flows back to their present value, investors can determine if a stock is overvalued or undervalued at its current market price.
How the DCF Logic Works
This calculator uses a multi-stage growth model to project Free Cash Flow (FCF) over 10 years and then applies a terminal growth rate for the period beyond.
- Stage 1 (Next 5 Years): High-growth phase based on current business momentum.
- Stage 2 (Years 6-10): Transition phase where growth typically slows as the company matures.
- Terminal Value: The value of the company assuming it grows at a stable rate (like GDP) forever.
- WACC (Discount Rate): The weighted average cost of capital, representing the risk-adjusted required return.
DCF Valuation Example: HDFC Bank
Assume HDFC Bank has a current Free Cash Flow (FCF) of ₹30,000 Cr.
1. Stage 1 (5 yrs): Growing at 15% annually.
2. Stage 2 (5 yrs): Slowing to 10% growth.
3. Terminal Value: Growing at 4% forever.
4. Discount Rate: 11% (accounting for banking sector risk).
In this scenario, the DCF model calculates the total 'Present Value' of all these future cash flows. If the resulting intrinsic value per share is ₹2,000 and the current market price is ₹1,600, the stock is 20% undervalued.
Frequently Asked Questions
⚠️ Disclaimer
The figures provided by this calculator are estimates based on the inputs you provide and standard financial formulas. STOCKCALC.IN does not offer investment advice. Please consult a qualified financial advisor before making any investment decisions.