Project free cash flow (FCF), pick Gordon or exit-multiple terminal value, discount with WACC — the result: enterprise value, equity value, and intrinsic value per share. Use consistent currency units for all inputs.
The margin of safety label is descriptive (market price position vs the model’s intrinsic value), not a transaction recommendation. The model assumes your FCF projections are correct — it does not validate assumption quality.
What annual FCF growth is the market pricing in? From the current market price, compute the implied growth (g) assuming FCF grows constantly during the projection period, then a Gordon terminal.
This figure is descriptive: the growth expectation embedded in the market price according to the model — not a judgment of whether the market price is fair.
Three assumption sets at once — see the intrinsic-value-per-share range from optimistic to pessimistic scenarios. The terminal value method follows the choice below (Gordon uses each scenario’s terminal g).
Gordon method. Empty cells (–) mean the combination is invalid because r ≤ g.
A stock’s intrinsic value is an estimate of one share’s fair value based on company fundamentals — cash flows, debt, and shares outstanding — not on today’s market price. The most common method is DCF (discounted cash flow): projecting future free cash flow (FCF) and discounting it to present value with a discount rate like WACC. This calculator uses the DCF method; other valuation methods such as the Dividend Discount Model (dividend-based) and the Graham Number (based on EPS and book value) are available in other stock valuation calculators on this site.
The formula: present value = Σ FCF_t ÷ (1+r)^t for t=1..n, plus discounted terminal value: TV ÷ (1+r)^n. Gordon-method terminal value: TV = FCF_{n+1} ÷ (r−g), with FCF_{n+1} = FCF_n × (1+g). From enterprise value (EV), subtract net debt (total debt − cash) to get equity value, then divide by shares outstanding. Example: FCF [100, 110, 121], r=10%, g=3% → PV of FCF ≈ 272.73; FCF_4 = 124.63; TV ≈ 1,780.43; PV of TV ≈ 1,337.66; EV ≈ 1,610.39. With debt 200, cash 50, and 100 shares outstanding → equity value ≈ 1,460.39 and intrinsic value ≈ 14.6039 per share.
Terminal value (TV) is the value of all cash flows after the explicit projection period — usually the largest portion of DCF value. Gordon growth method: TV = FCF_{n+1} ÷ (r−g), suitable when the company is assumed to grow steadily forever; the absolute requirement is r > g, otherwise the formula is undefined and the calculator rejects the input. Exit multiple method: TV = final-year FCF × multiple (e.g. 8×), suitable when you have a market multiple reference. Example: FCF_n = 121 with multiple 8 → TV = 968. Both methods are equally sensitive to assumptions — compare both before drawing conclusions.
WACC (weighted average cost of capital) is the company’s weighted average cost of capital: the combination of cost of equity (the return shareholders demand) and after-tax cost of debt, weighted by capital structure proportions. In DCF, WACC is used as the discount rate (r) because it reflects the opportunity cost of all the company’s capital providers. This calculator accepts WACC as an input — it does not compute WACC from CAPM or capital structure; determine the figure from your own analysis or trusted sources.
Margin of safety is the difference between the model’s intrinsic value and the market price, divided by intrinsic value: (intrinsic value − market price) ÷ intrinsic value × 100%. Example: intrinsic value 14.6039 and market price 12 → margin of safety ≈ 17.83%. This concept was popularized by Benjamin Graham as a buffer against projection errors. The label in this calculator is purely descriptive — “below/above the modeled intrinsic value” — and not a recommendation to buy or sell shares.
All four use different valuation approaches for different questions. The Dividend Discount Model (/tools/dividend-discount-model/) values a stock from future dividends — suitable for stable dividend payers. The Graham Number (/tools/graham-number/) uses √(22.5 × EPS × BVPS) — a conservative screen for defensive stocks with stable profits, not for growth stocks. The business valuation calculator (/tools/business-valuation/) uses simple DCF for total SME value (NPV), not per share. This calculator uses multi-year DCF from free cash flow to intrinsic value per share, with Gordon or exit-multiple terminal value, reverse DCF, bull/base/bear scenarios, and a sensitivity table.
A DCF result is only as reliable as your assumptions: FCF projections, discount rate, and terminal growth. Small changes to r or g can shift intrinsic value by tens of percent — use the Sensitivity Table mode to see the range. The model also ignores management quality, industry risk, and share dilution. Treat the result as educational material for understanding valuation logic, not as investment advice or a basis for buy/sell decisions. For real transaction decisions, consult a licensed financial advisor.
See also: dividend discount model calculator, Graham number calculator, business (SME) valuation calculator, free cash flow (FCF) calculator.
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