Estimating a Private Company's Theoretical Value with DCF
Private companies don't have a market-quoted share price, so valuing them requires a dedicated method — and the most widely used one is discounted cash flow (DCF) analysis. DCF projects the free cash flow (FCF) a company is expected to generate in the future, discounts each year's cash flow back to today's dollars at an appropriate rate, and sums them up. Its strength is that it captures both future growth potential and risk in a single number.
This calculator starts from your most recent annual FCF, assumes it grows at your entered rate for five years, and discounts each year's cash flow to present value using your discount rate (WACC). It then calculates a terminal value assuming cash flows grow at a constant terminal growth rate forever after year five, discounts that back to present value as well, and adds the two together to get total enterprise value (EV). Enter net debt to see equity value, and shares outstanding to see an estimated theoretical value per share.
DCF valuations are highly sensitive to small changes in assumptions like growth rate and discount rate. Treat this calculator's result as just one reference point among several, and for real fundraising or equity transactions, have accountants or finance professionals conduct thorough due diligence and cross-check the value with other valuation methods.
Frequently Asked Questions
Discounted Cash Flow (DCF) values a company by projecting its future free cash flows and discounting them back to present value at an appropriate rate. It's widely used to value private companies that don't have a market price.
The discount rate is usually the weighted average cost of capital (WACC), and it rises with the company's risk level. Early-stage private companies often use a higher rate around 12-20%, while more stable companies typically use 8-12%.
The terminal value formula (FCF×(1+g)/(r-g)) breaks down if the discount rate (r) is smaller than the terminal growth rate (g), since the denominator would turn negative. The discount rate must always exceed the terminal growth rate for the calculation to work.