Discounted Cash Flow Calculator: DCF Valuation Calculator With Terminal Value
Businessappraisal estimates value with a discounted cash flow model that projects your future cash flows and brings them back to today using a discount rate. You enter your numbers and it returns a range, so you can see how growth assumptions and risk change what a business is worth.
Last updated August 2026
Estimated business value
Method breakdown
What moves this number
Estimate, not a certified appraisal. Your figures are not stored.
In short
A DCF valuation calculator estimates the worth of a business by projecting its future cash flows and discounting them to present value using a discount rate that reflects risk. Businessappraisal builds a multi-year projection from your revenue and margins, then applies a discount rate, often in the 10 to 20 percent range for private companies, plus a terminal value to capture cash flows beyond the forecast. It returns a low-to-high range and shows the assumptions behind it rather than a single promised figure. This is an educational estimate to inform your planning, not a certified appraisal or financial advice.
What you get
DCF valuation, for founders, buyers, and sellers
Values the future, not just today
A DCF captures where a business is heading, so a company with strong projected growth can estimate higher than its current profit alone suggests.
Risk shown as a discount rate
Private companies are often discounted at 10 to 20 percent, and Businessappraisal shows the rate it used so higher risk visibly lowers the estimate.
Terminal value included
The model adds a terminal value for cash flows beyond the forecast window, which is a major driver of the final range.
Assumption-driven range
Because growth and discount inputs are visible, you can see how sensitive the estimate is and stress-test it yourself.
How it works
From your numbers to a value range in four steps
Enter your financials
Provide revenue, margins, and an expected growth outlook so Businessappraisal can project future cash flows.
AI applies the method
It discounts each projected year to present value using a risk-based discount rate and adds a terminal value.
Get the value range
You receive a low-to-high estimate with the discount rate and assumptions shown, framed as an educational estimate.
Understand the drivers
See how growth, margins, and the discount rate move the estimate so you know which assumptions matter most.
How do you calculate discounted cash flow?
Project free cash flow for five years, discount each year back to today at a rate reflecting the risk of those cash flows, add a terminal value for everything beyond year five, and sum the results. The formula for each year is cash flow divided by (1 plus the discount rate) raised to the power of the year number. Everything else is judgment about the three inputs.
Here is a worked example. A services business generates $500,000 of free cash flow today and is expected to grow it 8 percent a year. At a 15 percent discount rate, the five projected years are worth roughly $470,000, $441,000, $414,000, $389,000, and $365,000 in present-value terms, about $2.08M in total. Notice how quickly the discounting bites: year five cash flow of $735,000 is worth $365,000 today.
| Year | Projected free cash flow | Discount factor at 15% | Present value |
|---|---|---|---|
| 1 | $540,000 | 0.870 | $470,000 |
| 2 | $583,000 | 0.756 | $441,000 |
| 3 | $630,000 | 0.658 | $414,000 |
| 4 | $680,000 | 0.572 | $389,000 |
| 5 | $735,000 | 0.497 | $365,000 |
Then add the terminal value, which in this example dominates the answer. That is the normal outcome, and it is the part of a DCF most likely to be wrong.
How do you calculate terminal value?
Two methods are standard. The Gordon growth method divides year-six cash flow by the discount rate minus a long-run growth rate. The exit multiple method applies a market EBITDA multiple to final-year earnings. Most analysts run both and check that they broadly agree, because a large gap means one of the assumptions is unrealistic.
Continuing the example above, year-five cash flow of $734,664 grown at a 2.5 percent perpetual rate gives year-six cash flow of about $753,000. Divided by the discount rate minus that growth rate (15 percent minus 2.5 percent, so 0.125), the terminal value is roughly $6.02M, which discounted back at 0.497 is about $3.00M today. Added to the $2.08M from the forecast years, the estimate is roughly $5.07M. The terminal value is 59 percent of the answer.
That concentration is why the long-run growth rate matters so much and why it must stay modest. Note also that year six grows at the perpetual rate, not at the 8 percent forecast rate: carrying the forecast growth into perpetuity is one of the most common ways a DCF is built wrong. A terminal growth rate above long-run economic growth, so realistically 2 to 3 percent, implies the business eventually becomes larger than the economy. Push it to 5 percent in this example and the estimate rises by more than $800,000 on an assumption nobody can defend. The exit multiple method avoids that trap by anchoring the endpoint to what businesses like yours actually sell for, which is the same evidence behind our comparable sales benchmarking.
What discount rate should you use for a private company?
Private companies are commonly discounted at 10 to 20 percent, and small owner-dependent businesses often higher still. The rate is normally assembled with the build-up method rather than taken from a table, because a private company has no observable cost of equity.
- Risk-free rate. The yield on a long-dated Treasury, the base return available without taking business risk.
- Equity risk premium. The extra return investors historically require for holding equities rather than Treasuries.
- Size premium. Smaller companies have historically returned more because they are riskier, and this component grows as the business gets smaller.
- Company-specific risk. Customer concentration, owner dependence, thin management, a short lease, or one supplier. This is the most judgmental piece and frequently the largest for a small business.
Sensitivity here is severe. In the worked example above, moving the discount rate from 15 percent to 12 percent lifts the estimate by roughly a third, from about $5.07M to about $6.74M, without changing a single thing about the business. That is not a flaw in the method, it is the method telling you that value depends on perceived risk. It is also why a DCF output belongs in a range and why the drivers behind the rate deserve as much attention as the cash flow forecast. Our page on business value drivers covers the factors that pull company-specific risk up or down, and our cost of capital by industry reference gives the 2026 range each build-up component is defended in, alongside the published WACC for 94 US sectors.
When should you not use a DCF?
A DCF is the wrong first tool for most small businesses, and it is worth being direct about why. The method requires a credible multi-year forecast. If the business is small, owner-operated, and its results move with the local economy or one or two customers, that forecast is a guess, and discounting a guess precisely does not make it less of a guess.
Buyers of main street businesses know this, which is why they price on SDE multiples rather than on your projections. A seller who presents a DCF built on 20 percent growth is usually met with an offer based on trailing earnings. Where a DCF earns its keep is a business with contracted or recurring revenue, a genuine growth trajectory backed by history, or heavy reinvestment that suppresses current earnings and understates the multiple-based value.
The most useful practice is to run both and read the gap. If the DCF and the multiple agree, the estimate is well supported. If the DCF is far higher, the value depends on the forecast happening, and that is exactly what a buyer will discount or push into an earnout. Businessappraisal runs a revenue multiple, an earnings multiple, and a discounted cash flow together for this reason.
Questions
DCF valuation questions people ask
What is a discounted cash flow valuation?
A DCF values a business as the sum of its projected future cash flows, each discounted back to today at a rate that reflects risk. A dollar of profit expected in five years is worth less than a dollar today, and the discount rate quantifies by how much. The result is what the future earning power of the business is worth right now.
How does a discounted cash flow calculator work?
It projects several years of cash flow from your revenue, margins, and growth assumptions, discounts each year to present value, then adds a terminal value for everything beyond the forecast window. Businessappraisal shows the discount rate and assumptions it used, so you can stress-test the estimate instead of trusting a black box.
What discount rate should I use to value a private business?
Private companies are commonly discounted at 10 to 20 percent, well above public-market rates, because their earnings are riskier and their shares are illiquid. A stable business with contracted revenue sits near the low end; a small, owner-dependent, or concentrated business belongs near the high end. Small changes in the rate move the value a lot, which is why the output should be a range.
When is DCF better than a multiple-based valuation?
When the future will not look like the past: a business with accelerating growth, a turnaround, or heavy reinvestment that suppresses current earnings. Multiples price the business as it is today; a DCF prices where it is going. In practice the strongest estimate runs both and treats the gap between them as information about how much of the value depends on the forecast.
How many years should a DCF forecast cover?
Five years is the standard forecast window, and ten is used where a business has contracted revenue or a long asset life that makes the later years genuinely projectable. Extending the window rarely adds accuracy for a small company, because the forecast quality degrades faster than the discounting reduces the weight of those years.
Why is terminal value such a large part of a DCF?
Because it represents every year of cash flow beyond the forecast window, which is most of the life of a going concern. It commonly accounts for 50 to 75 percent of a DCF result. That is normal rather than an error, but it does mean the terminal growth rate and exit multiple deserve more scrutiny than the individual forecast years.
Can you do a DCF for a small business?
You can, but it is usually not the number a buyer will pay on. Main street businesses trade on SDE multiples because their forecasts are not reliable enough to discount. A DCF is most useful for a small business with recurring or contracted revenue, or as a cross-check that shows how much of your asking price depends on growth that has not happened yet.
More valuation methods
Businessappraisal provides an educational estimate for informational purposes only. It is not a certified appraisal or financial advice. For a formal valuation, consult a credentialed appraiser.
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