Free calculator
Reverse DCF calculator
Start from the price. The calculator finds the yearly free-cash-flow growth that today’s valuation already assumes.
Free-cash-flow growth the price implies
— a year
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Illustrative defaults, not a real company. Growth is held constant over the forecast years, then a perpetual terminal rate applies. For each company’s own implied growth next to what forecasts expect, open Belief Gap.
How to use the reverse DCF calculator
Money inputs are in millions of dollars, except the share price.
- Share price ($) and Diluted shares (millions): multiplied, they give market value. Diluted shares are on the income statement in the latest 10-K or 10-Q.
- Net debt ($ millions): short- and long-term borrowings minus cash and short-term investments, from the balance sheet; negative for net cash. Market value plus net debt is the enterprise value the model must match.
- Free cash flow last year ($ millions): operating cash flow minus capital expenditures, from the cash flow statement, cleaned of one-off items. For an indebted company, add back after-tax interest, since net debt is already counted.
- Discount rate (%): your required return, usually the weighted average cost of capital.
- Terminal growth (%): growth after the forecast ends, commonly 2% to 3% and always below the discount rate.
- Forecast years: how long the solved growth rate lasts, typically five or ten.
How the implied growth calculator solves for growth
A reverse DCF uses the normal DCF equation with a different unknown:
Price × diluted shares + net debt = Σ FCF₀(1 + g)ᵗ ÷ (1 + r)ᵗ + TV ÷ (1 + r)ⁿTV = FCFₙ × (1 + terminal growth) ÷ (r − terminal growth)
No algebra isolates g, so the calculator solves numerically. Because the model's value rises steadily as g rises, it can bracket the answer between a rate that gives too little value and one that gives too much, then narrow the bracket until both sides match.
With the defaults, market value is $50 × 100 million = $5,000 million, and adding $500 million of net debt gives an enterprise value of $5,500 million. At 8% growth the model is worth $4,778 million, too little; at 10% it is worth $5,559 million, slightly too much. The solution is 9.86%, about 9.9% a year. Free cash flow must grow from $200 million to about $512 million in year 10, roughly 2.6 times today's level, and about 62% of the enterprise value still comes from the terminal value.
How to judge what growth is priced in
A calculator that answers “what growth is priced in?” gives you a claim about the business, not a verdict. Test it four ways:
- History. Work out free cash flow growth over the past five and ten years: (ending value ÷ starting value)^(1 ÷ years) − 1. If cash flow has compounded near 10% and the market is still growing, a 9.9% bar is ordinary. If it has compounded near 4%, the price needs a lasting acceleration.
- Consensus. Analyst forecasts usually cover two or three years. A price that needs 9.9% while forecasts sit at 5% is leaning on the later years.
- The multiple of today's cash flow. "2.6 times today's free cash flow in ten years" is often easier to judge than a percentage. Ask what revenue and margin it would take.
- Size and industry. Growth tends to slow as a company gets larger and its market matures, so a rate achieved at a smaller size may be hard to repeat.
The implied growth rate guide goes further on interpreting the number, and priced for perfection covers what happens when the bar is very high. For a real company, Belief Gap sets the growth its price implies against analyst forecasts, without you assembling the inputs.
Sensitivity to the discount rate
Holding every other default fixed, the discount rate changes the answer more than any other input:
| Discount rate | Implied FCF growth | FCF needed in year 10 ($m) | Terminal value share of EV |
|---|---|---|---|
| 7% | 4.8% | 320 | 67.5% |
| 8% | 7.5% | 411 | 64.6% |
| 9% | 9.9% | 512 | 62.0% |
| 10% | 12.0% | 623 | 59.7% |
| 11% | 14.1% | 746 | 57.6% |
Each point of discount rate shifts the implied growth by about two to 2.7 points. Report the result as a range, for example 7.5% to 12.0% for rates between 8% and 10%, and argue with the whole range. Forecast length matters too: the same price needs faster growth over five years than over ten, because the high-growth phase has less time to build cash flow. The reverse DCF guide tabulates the effect of each assumption.
Limitations of a reverse DCF calculator
- One growth rate for the whole forecast. Real companies grow fast, then slow; the solved rate is an average path, not a year-by-year forecast.
- The starting cash flow drives everything. An unusually good or bad year compounds through every forecast year, so use a normalized figure.
- Zero or negative free cash flow has no answer. No growth rate applied to a loss produces a positive enterprise value.
- Banks and insurers do not fit, because their free cash flow is not meaningful.
- Dilution. Company-level growth overstates per-share growth when the share count is rising.
- It is a hurdle, not a value. Low implied growth does not mean a stock will rise; a declining business can deserve it.
To go the other way, from your own forecast to a value per share, use the stock valuation calculator.
See what the price implies for a real company
Belief Gap sets the growth a company's share price implies against what analyst forecasts expect.
Frequently asked questions
What does a reverse DCF calculator do?
It starts from the current share price and works backwards to the free cash flow growth that would justify it, given a discount rate, terminal growth and forecast length. The answer is the growth the market has priced in. It does not tell you what the stock is worth; it gives you one concrete expectation to test against the company's record and forecasts.
How do you calculate implied growth from a stock price?
Convert the price to enterprise value by multiplying by diluted shares and adding net debt. Then find the growth rate at which discounted free cash flow plus a discounted terminal value equals that enterprise value. There is no closed-form formula, so a calculator or a spreadsheet's goal seek tries growth rates until the two sides match.
What is a reasonable implied growth rate?
It depends entirely on the business. Ten percent a year can be comfortable for a company that has compounded cash flow faster than that in a growing market, and very demanding for a mature one. Compare the implied rate with five- and ten-year history, with consensus forecasts and with how large the company already is.
Why does the discount rate change the implied growth so much?
A higher discount rate shrinks the present value of every future cash flow, so the model needs faster growth to reach the same enterprise value. With the calculator's defaults, moving the rate from 9% to 10% lifts implied growth from 9.9% to 12.0%. That is why the result should be reported as a range across plausible rates.
Can I use a reverse DCF calculator on any stock?
It works best for companies with positive, fairly stable free cash flow. It fails for companies with negative free cash flow, gives misleading answers for cyclicals starting from a peak year, and does not suit banks or insurers. For those, solve instead for the revenue growth or margin the price requires, or use a book-value approach.