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Introducing: The DCF Calculator

First things first. I had a wonderful workshop in Pune last Sunday. And here are the amazing tribe members who attended it…


My upcoming Workshops would be in Chennai, Delhi, and Mumbai, and you will get an update on the same soon.

Anyways, let me now focus on today’s topic. Ever since I shared my stock analysis excel a couple of years back, I have received innumerable questions from people who’ve found it difficult to handle the excel. 🙂

If you have been facing a similar problem, don’t worry, because I’m working on a few simple online calculators – like the one on DCF or discounted cash flow method below – that can help you analyze the financials of businesses and also value them.

Now, before you praise me for my tech skills which I don’t have, let me share that this calculator has been developed by my good friend and tribe member Anshul Khare, who is also working with me on other such calculators. Thanks Anshul!

Before you work on the calculator below, read this post I did on how to value stocks using DCF to understand the basics of sensible DCF usage, and how to avoid its misuse.

And after you work on the calculator below and arrive at DCF values for your chosen stocks, remember that your results will be proven wrong in the future (all valuations are wrong, you see!). 🙂

A tool like calculator or excel must only be used for approximate estimation, and never to seek perfection. What matters more is whether the business is simple to understand and whether you understand it or not.

So, please focus on decisions, and not on outcomes of these tools.

Now, try out this DCF Calculator (please use only absolute values, i.e., without decimals and percentage signs). Hover on the “Help” links to understand what a specific term/field means.

If you can’t see the calculator below, click here.

DCF Calculator :




Help!

Normalize.
Take 3 years’ average free cash flow (FCF) as this starting number. FCF can be calculated from the Cash Flow Statement. FCF formula = Net Cash from/(used in) Operating Activities minus Purchase of Fixed Assets




Help!

Be conservative!
Be reasonable with your growth rate assumptions. Higher you set the growth rate, higher you set up the downside potential. Tip – For best businesses, cap the growth for first five years to 20% and 15% for next five.





Help!

Discount rate – Rate at which you discount the future cash flows to the present value. It’s your expected rate of return from the stock. 10-12% is good for stable, predictable businesses. 15% is good for relatively less predictable businesses. Using a high rate to discount the future cash just means you are willing to pay less today for the future cash and vice versa. It won’t really matter what rate you use as long as you are being intellectually honest and conservative about future cash flows.




Help!

Since it isn’t practical to forecast cash flows for an infinite number of years, it’s usual to end the DCF with a terminal value. The best terminal growth rate is 0%, and the highest you should go (for safest businesses) is 2%.





Help!

Net Debt – Total debt of latest period minus Total cash and equivalents. Enter a negative value for cash positive companies.




Help!

Valuation is an imprecise art (yes, however smart you may think you are!). Also, the future is inherently unpredictable. Thus, it’s important to bring in the most-important investing concept of Margin of Safety into the picture. About 20-30% discount to your intrinsic value calculation is a good margin.





I’ll soon be sharing a few other calculators to perform financial analysis and stock valuations. So your questions and feedback on this DCF calculator and other relevant suggestions will be very helpful.

You can share the same in the Comments section below.

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About the Author

Vishal Khandelwal is the founder of Safal Niveshak. He works with small investors to help them become smart and independent in their stock market investing decisions. He is a SEBI registered Research Analyst. Connect with Vishal on Twitter.

Comments

  1. Hi Vishal,

    This was much needed.

    Thanks for creating it.

  2. Thank you vishal
    Is there a way to download the calculator, or will we have to always come to this article to use it???
    Appreciate the effort as always

    Regards

  3. Hi Vishal,

    You are doing commendable work in the field of investor education. Please keep it up.

    Have always learnt something on every visit to your site.

    Cheers!

    Gundeep

  4. Great work! Thanks Vishal for such an effort.
    I observed that the above DCF calculator does not work for decimal numbers. i.e., it would work if all the values are whole numbers (1,2,3,4, etc) but not when any of the value is fraction (2.21, -4.65, etc).

    • Anshul Khare says:

      Hey Abhijit,

      As Munger says, “Its better to be approximately right than precisely wrong” 🙂

      Still, if you do want to use fractional values, you can use absolute values in all the rupee fields (instead of cr). So if you want to enter 4.57 cr. as Initial FCF, 10.5 cr as shares outstanding and, 7.62 cr. as net debt; you can instead enter 45700000 as initial FCF, 105000000 as shares outstanding and 76200000 as net debt.

      So all the Rs. values have to be entered in the same denomination (Cr./Lacs/million). The final result of DCF value per share will always be in rupees.

  5. Thanks Vishal! This is of great value!! Might I suggest that you put all your resources such as the stock analysis excel and these calculators on a separate tab right at the top for ease of access.

  6. Sir, what about Hyderabad….

  7. Anirban Ghosh says:

    Sir,
    I want to learn from you , but both the workshop and one year online course admissions are closed. When can I expect a new date of either workshop or online one year course. Pls sir do it quickly , i want to learn from you as fast as it can get .

    Thanking you in advance for the good job you are doing for the general people like us.
    Anirban Ghosh.

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