What cash flow figure should I use?

Use normalised free cash flow, not a single year with unusually high or low profitability. Free cash flow is operating profit minus tax, minus changes in working capital and necessary capital expenditure.

What discount rate should I use?

There is no universal number. Common starting points are WACC or a simple required return based on the risk-free rate plus a risk premium. Many practitioners use eight to twelve per cent for Swedish companies. Past performance is not a guarantee of future returns.

How do you set the long-term growth rate?

The terminal value assumes the company grows forever at a constant rate. That rate should never exceed long-term GDP growth. It is typically set at two to three per cent.

Why are DCF models rarely precise?

Cash flow forecasts over five to ten years carry large uncertainties. The terminal value is extremely sensitive to assumptions about growth and discount rate. DCF is a framework for structured thinking, not a precision instrument.

Tool

DCF calculator

Calculate fair value using Discounted Cash Flow. Adjust cash flow, growth rate, terminal value and discount rate to understand how each assumption affects the valuation.

Guide

How to interpret the result

DCF gives a fair value estimate based on your assumptions. The result is sensitive to the discount rate and the long-term growth rate. Try changing these to see how much the value moves.

Terminal value dominates: In most DCF models, the terminal value accounts for 60 to 80 per cent of total value. The bar chart shows exactly how the split looks with your assumptions.
The discount rate is critical: A one percentage point difference in the discount rate can change the fair value estimate by 20 to 30 per cent. It is the variable with the greatest effect.
Assumptions matter more than the formula: DCF rarely gives a precise answer. Its real value is that it forces you to articulate your assumptions. Are they reasonable? That is the question.

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