Tools/ Valuation
Reverse DCF Calculator
Every price is a forecast wearing a disguise. Enter a stock's price and its free cash flow per share, and this calculator works backwards to the growth rate the market is already assuming, so you can argue with the assumption instead of the ticker. No sign-up, and the calculation runs entirely in your browser on the numbers you type.
Implied FCF growth, 10 years
7.15% per year
At a 10% discount rate and 3% terminal growth, the market price only makes sense if free cash flow per share compounds at that rate for a full decade. The question the number leaves you with is the only one that matters: do you believe it?
Pre-filled with the worked example from this page (price $100.00, free cash flow per share $5.00) so the mechanics are visible before you type. Replace both with a real company's figures to run it on an actual stock. Educational tool, not financial advice. A reverse DCF describes what a price assumes, not what a stock is worth.
How it works
A discounted cash flow model values a stock by projecting its free cash flow per share forward ten years, adding a terminal value for everything after that, and discounting the whole stream back at your required return. A forward DCF feeds in a growth rate and gets a value. This calculator holds the price fixed and searches, by bisection, for the one growth rate that makes the model's value exactly equal the price.
Two assumptions do quiet work in the background. The terminal growth rate, 3 percent in the worked example, is the rate cash flow is assumed to grow at forever after year ten; it should sit near long-run economic growth, not near the company's current pace. And the solved growth rate is a constant: real companies grow unevenly, fast early and slower later, so read the answer as the average pace the price requires, not a year-by-year prediction.
A worked example
Take a stock at $100.00 with free cash flow per share of $5.00, a 10 percent discount rate, and a 3 percent terminal growth rate. The calculator solves to 7.15% annual growth for ten years. For calibration, the same cash flow stream with zero growth across the ten-year window, and the same 3 percent terminal rate after it, is worth $59.09 under this model, so the last forty dollars of the price are payment for growth that has not happened yet.
Two contrasts make the scale readable. At a price of $50.00 on $4.00 of free cash flow per share, the implied growth is just 0.77% a year: the market is pricing in near stagnation, and merely ordinary performance beats the assumption. At $200.00 on the same $5.00 of cash flow as the first example, implied growth jumps to 16.49% a year for a decade, a pace very few large companies have ever sustained. Same model, same assumptions: the price alone moved the expectation from modest to heroic.
The discount rate matters as much as the growth rate. Rerun the first example at a 9 percent discount rate and the implied growth falls to 5.00%; at 11 percent it rises to 9.14%. Lower the terminal rate to 2 percent and it rises to 8.23%. Anyone who quotes you an implied growth figure without stating their discount rate is quoting you half a number.
Where a reverse DCF misleads
- Lumpy cash flow. One year of heavy investment can crush free cash flow and make the implied growth look absurd. Use a normalized or multi-year average cash flow figure for cyclical or fast-building companies.
- Buybacks hide in per-share figures. Free cash flow per share grows when the share count shrinks, even if total cash flow is flat. The implied rate blends business growth and buyback pace; decide which one you actually believe in.
- The answer inherits your discount rate. As the worked example shows, two honest analysts can differ by four points of implied growth on the same stock purely through the rate they require. Argue about the rate explicitly.
- It prices the average, not the path. A company can hit a decade-average growth rate and still be a miserable holding if the cash arrives late. The model cannot see sequencing, competition, or management.
Frequently asked questions
What is a reverse DCF?
A normal DCF starts with your growth assumptions and produces a value. A reverse DCF runs the model backwards: it starts with the market price and solves for the growth rate that makes the model equal that price. The output is not a valuation. It is the expectation already embedded in the price, stated as a number you can argue with.
What growth rate does this calculator solve for?
The annual growth rate of free cash flow per share, sustained over a ten-year projection window. After year ten the model assumes a slower terminal growth rate forever, which is why the discount rate must stay above the terminal rate for the math to work.
What discount rate should I use?
The discount rate is your required return: what you demand per year for holding a risky asset instead of a safe one. Many long-term investors test a band rather than a single figure, for example 9 to 11 percent for a large, stable company, higher for smaller or more volatile ones. The sensitivity figures on this page show how much the answer moves when the rate moves, which is exactly why a band is more honest than a point.
Why does the calculator refuse some inputs?
Three cases get a boundary message instead of a growth figure. Negative or zero free cash flow per share means the model has no positive cash flow base to solve from. A discount rate at or below the terminal growth rate breaks the terminal value formula. And some prices would require growth outside the range this calculator searches, above 100 percent a year for a decade or below a 50 percent annual decline; the calculator reports that the implied rate sits outside its supported range under your assumptions instead of printing the bracket edge as if it were an answer.
Is a high implied growth rate a sell signal?
No. It is a burden-of-proof signal. A price that implies 16 percent cash flow growth for a decade can still be justified if the company actually delivers it; some do. The reverse DCF tells you what has to be true, in numbers, so your research can focus on whether it is true. It makes no recommendation either way.
Run it on your whole watchlist
Inside FullPort, the reverse DCF sits next to the forward DCF, the Graham Number, and the rest of the valuation toolkit, applied to live company financials instead of hand-typed figures.
Start freeFree to use. No credit card required.
Prefer to start from a price ceiling instead? The Graham Number calculator applies Benjamin Graham's two-input discipline, and the paired explainer, Reverse DCF: read the growth rate hiding in the price, walks through the method end to end.