How this two-stage DCF calculator works
This is the full two-stage DCF model. It is deliberately more detailed than the simple 5-year DCF tab in our stock valuation calculator, and it answers the opposite question of the reverse DCF calculator, which starts from the market price and solves backwards for implied growth. Here you project forward: your assumptions in, per-share value out.
- Years 1–5: FCF grows at your stage-1 rate; each year is discounted at r
- Years 6–10: FCF grows at your stage-2 rate; each year is discounted at r
- Terminal value = FCFyear 10 × (1 + gterminal) ÷ (r − gterminal), discounted back 10 years
- Enterprise value = PV(years 1–5) + PV(years 6–10) + PV(terminal value)
- Per-share value = (enterprise value − net debt) ÷ shares outstanding
Two stages vs. one stage
A single-stage DCF forces one growth rate onto the entire forecast, which rarely fits reality: companies that grow fast tend to slow as they scale. The two-stage structure lets you model that fade explicitly — for example 12% for the next five years while a market is being captured, then 6% as the business matures, before settling into a 2–3% terminal rate that roughly tracks the economy. If your stage-1 and stage-2 rates are the same, this model collapses neatly into a one-stage DCF, so you lose nothing by having the extra stage available.
Why the terminal value dominates
Run almost any reasonable set of assumptions and you will find 60–80% of the enterprise value sitting in the terminal value — the breakdown table in the result shows the exact share for your inputs. That is not a flaw in this calculator; it is the arithmetic of a business assumed to operate indefinitely. The practical consequence: your terminal growth and discount rate choices move the answer more than any single forecast year, so spend your research effort there. Keep terminal growth at or below long-run GDP growth (2–3%) — a company cannot outgrow the economy forever — and pick a discount rate you can defend. If you need one, our WACC calculator builds it from CAPM inputs.
Pair it with a reverse DCF
Forward and reverse DCFs are the same equation read in opposite directions, and they are strongest together. This calculator tells you what a stock is worth under your assumptions; the reverse DCF tells you what growth the current price already assumes. If your two-stage value says "cheap", check whether the market's implied growth is below your stage-1 rate for reasons you can articulate — that gap is your thesis. If you can't articulate it, the market may know something your model doesn't.
Worked example
Suppose a company generated $4,000M of free cash flow over the last twelve months, and you expect 10% growth for years 1–5 fading to 6% for years 6–10, a 2.5% terminal rate, a 9% discount rate, 1,200M shares and $5,000M of net debt. The model returns roughly $76.87 per share, with about 59% of the enterprise value in the terminal value. Against a $150 market price, the verdict is that the stock trades well above this scenario's intrinsic value — the market is paying for far more growth than a 10%-then-6% path delivers. To see exactly what growth would justify $150, flip the question with the reverse DCF.