Intrinsic value (DCF) calculator

Hey there,

I was wondering what the formula is to get this last part of the equation. I pressed calculate 5 times (meaning just used the default values) to get to this last part:

"The intrinsic value per share is $17.99 at a 10.00% annual discount rate
Based on the cash flows you have forecasted and a market price of $25.04, this company may yield a 8.14% annual return"

I am interested in knowing how I can get that 8.14% annual return based on the calculated intrinsic value of 17.99 and market price of 25.04.

Any help ? Thanks....


  • Hi there,

    The DCF forumula is as follows;

    DCF = CF1/(1+r)1 + CF2/(1+r)2 + CF3/(1+r)3 ...+ CFn/(1+r)n

    CF1 = cash flow in period 1
    CF2 = cash flow in period 2
    CF3 = cash flow in period 3
    CFn = cash flow in period n
    r = discount rate (also referred to as the required rate of return)

    If you invest in the stock you have referred to at a cost price of $17.99 you should earn a 10% ROI. If you invest at the current market price of $25.04 you will expect to earn a ROI of 8.14%

    I hope this helps and if you have any further questions please don't hesitate to ask!


  • edited September 2017
    Hey David,

    Thanks a lot for the reply. But what I wanted to know is the next step in the calculation after DCF is calculated.

    It seems:
    Intrinsic value = (sum of DCF + Discontinued perpetuity cash flow (DPCF) ) / Shares Outstanding

    (so in the default examples it is (8203 + 9790) / 1000 = $17.99 (@ 10% annual return) -> I get this...

    Question is how do we go from market price to the annual return %? So it would be more like:
    (x + y) / 1000 = 25.04 --> ? (since both DCF and DPCF are dependent on the discount rate which is what we want to calculate)

    Maybe its just a maths equation but somehow not able to get my head around it .....or maybe its much simpler and I am making a mess of it..
  • Hi there,

    You are not intending to calculate the discount rate, this is the rate of return you are demanding. So if you wish a 10% return on investment the calculator discounts the esimated future free cash flows back to the present at that rate in order to determine what price you must purchase the stock at to achieve the desired return. If you alter the discount rate the Intrinsic value will change accordingly. It then also tells you what the likely return will be if you purchase the stock at the current market price. I hope this answers your question and if not I'll try and help you a little further if I can.


  • Hello David,

    Yet not fully sure how do I manually calculate this ----> "Based on the cash flows you have forecasted and a market price of $25.04, this company may yield a 8.14% annual return" (as I know that if the current market price was 17.99, annual return would be 10%)

    Intrinsic value = 17.99
    Current price = 25.04

    Thanks again!
  • I have the same question as well. How is the 8.14% rate of return calcualted? I am trying to calcualte the rate of return programmatically given the market price and the FCF.

  • edited October 2017
    Hi there guys,

    Apologies for the slow response.

    If I understand you correctly you are attempting to calculate the Internal rate of return (IRR), this being the discount rate which makes the present value of future cash flows equal to the intial capital outlay. If so this formula is;

    NPV= ∑ {Free Cash Flow / (1+r)^t} – Initial Investment




    Just though you might actually be referring to the reverse discounted cash flow method, if so here is an explanation;
  • Thank you for answering my question.

    Yes, I am looking for the formula to calculate the IRR, but after doing a little more research on the web, it looks like it has to be done by trial and error.

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