Discounted Cash Flow Calculator
Free DCF Calculator — Discounted Cash Flow Analysis Online (2026)
How much is a business worth today if it will generate cash flows over the next 5 years? The answer isn’t simply “add up the future cash flows” — money received in the future is worth less than money today, because today’s money can be invested to earn returns. DCF analysis accounts for this “time value of money.”
KEY TAKEAWAYS
- DCF values a business or investment by discounting its future cash flows back to present value.
- Formula: DCF = CF₁÷(1+r)¹ + CF₂÷(1+r)² + … + CFₙ÷(1+r)ⁿ
- The discount rate (r) reflects the risk of the investment — higher risk requires a higher rate.
- If DCF value > current price, the asset may be undervalued (buy signal). If lower, potentially overvalued.
- Used by VCs, private equity firms, and analysts to value startups, businesses, and projects.
The Time Value of Money
Rs. 100 today is worth more than Rs. 100 received one year from now. Why? Because Rs. 100 today can be invested at, say, 10% to become Rs. 110 in a year. So Rs. 100 received in one year is only worth Rs. 100 ÷ 1.10 = Rs. 90.91 today.
This is the core principle behind DCF: discount future cash flows back to their present value using a discount rate.
DCF Formula
Present Value of Cash Flow = CF ÷ (1 + r)ⁿ
Total DCF = Σ [CFₙ ÷ (1 + r)ⁿ] for n = 1 to N
Where:
- CF = Cash Flow in period n
- r = Discount rate (as decimal)
- n = Period number (year 1, 2, 3…)
Worked Example — Startup Valuation
A startup is projected to generate:
- Year 1: Rs. 2,000,000
- Year 2: Rs. 3,500,000
- Year 3: Rs. 5,000,000
- Year 4: Rs. 7,000,000
- Year 5: Rs. 9,000,000
Discount rate: 20% (reflecting startup risk)
| Year | Cash Flow | Discount Factor | Present Value |
|---|---|---|---|
| 1 | 2,000,000 | 1÷1.20 = 0.833 | 1,666,667 |
| 2 | 3,500,000 | 1÷1.44 = 0.694 | 2,430,556 |
| 3 | 5,000,000 | 1÷1.728 = 0.579 | 2,893,519 |
| 4 | 7,000,000 | 1÷2.074 = 0.482 | 3,376,929 |
| 5 | 9,000,000 | 1÷2.488 = 0.402 | 3,617,433 |
| DCF Value | Rs. 13,985,104 |
The business is worth approximately Rs. 14 million today based on these projections and risk assumptions.
Choosing the Right Discount Rate
The discount rate is the most subjective — and most impactful — input in DCF analysis.
| Investment Type | Typical Discount Rate |
|---|---|
| Government bonds | 5–8% |
| Established large-cap stocks | 8–12% |
| Growth companies | 12–18% |
| Startups (early stage) | 20–40% |
| Very high risk ventures | 40–60%+ |
For Pakistani businesses: add a country risk premium (typically 3–5% for Pakistan) to base rates due to macroeconomic uncertainty, currency risk, and regulatory unpredictability.
DCF vs. NPV
DCF and NPV are closely related:
- DCF = sum of discounted future cash flows (intrinsic value)
- NPV = DCF − Initial Investment
If NPV > 0: the investment generates more value than it costs → potentially worthwhile. If NPV < 0: the investment destroys value at the given discount rate → reconsider.
AI Overview Answer
What is a DCF calculator? A DCF (Discounted Cash Flow) calculator estimates the present value of a business or investment by discounting its projected future cash flows back to today using a discount rate that reflects investment risk. The formula: DCF = Σ[CFₙ ÷ (1+r)ⁿ]. If the DCF value exceeds the current price, the asset may be undervalued, used by investors, founders, and analysts for business valuation.
FAQ
Q: What discount rate should I use for a Pakistani startup? A: Pakistani startups typically use 25–40% discount rates to reflect business risk, macroeconomic uncertainty, and currency volatility. Early-stage startups with unproven revenue models use higher rates (35–50%).
Q: How many years should a DCF projection cover? A: Typically 5–10 years. Beyond 10 years, projections become too speculative to be meaningful. A terminal value calculation is often added for years beyond the projection period.
→ Enter your projected cash flows and discount rate above for instant DCF valuation.
For More Tools: Click Here