Reverse DCF Calculator

What is a reverse DCF?

A normal DCF asks: given my growth assumptions, what is this business worth? A reverse DCF asks the opposite question: given the price the market is paying, what growth assumptions am I implicitly accepting if I buy here? The math is identical — 5 years of projected free cash flow plus a Gordon-growth terminal value, discounted at your required return — but the unknown is the growth rate, not the value.

This calculator solves for the 5-year free cash flow growth rate g such that:

• Market cap = Σ [FCF_{year t} ÷ (1 + r)^t] + terminal value ÷ (1 + r)⁵
• Terminal value = FCF_{year 5} × (1 + g_terminal) ÷ (r − g_terminal)
• Solved with bisection over the range −50% to +100% (60 iterations, so the answer is precise to many decimal places)

Why it's useful: prediction becomes a sanity check

Forward DCFs have a dirty secret: pick a heroic growth rate and any stock looks cheap. The reverse DCF removes that temptation. It tells you the exact hurdle the market has already set — then your job is simply to judge whether that hurdle is low, reasonable or absurd for this business.

• Implied growth below 0%: the market prices in decline. If the business is stable or growing, expectations may be too pessimistic.
• Implied growth 0–10%: a modest bar. Mature, quality companies often clear it — this is where value investors hunt.
• Implied growth 10–20%: full but plausible for genuinely growing companies. Execution has to be good.
• Implied growth above 20%: the market expects something exceptional. Ask what has to go right, and what happens to the price if it doesn't.

How to judge whether the implied growth is realistic

Anchor on evidence, not narratives. Compare the implied rate to the company's 5–10 year historical FCF and revenue growth, to analyst consensus, and to the industry's long-run ceiling — no business outgrows its end market forever. A useful rule of thumb: the further implied growth sits above the company's own track record, the more of the return depends on hope rather than demonstrated economics.

Also check the sensitivity table in the result. If a 1% change in your discount rate swings the implied growth from "cheap" to "absurd", the signal is weak either way — treat it as a prompt for deeper research, not an answer.

Worked example

Suppose a company trades at $150 with 1,200M shares (a $180B market cap), generated $4,000M of free cash flow over the last twelve months, and you demand a 9% return with 2.5% terminal growth. Solving backwards, the market price only makes sense if free cash flow compounds at roughly 29% per year for the next five years. Now the decision is crisp: do you believe this business can nearly quadruple its cash flow in five years? If yes, the stock may be cheap. If that number makes you laugh, the price is doing the laughing at you. If you'd rather project growth forward yourself, use the forward stock valuation calculator, or check what a blend of simpler models says with the stock fair value calculator.

Frequently asked questions

What is a reverse DCF?

A reverse DCF starts from the current market price and works backwards to solve for the free cash flow growth rate that justifies that price, instead of projecting growth forward to estimate a value. It turns valuation from a prediction into a sanity check on market expectations.

How does this reverse DCF calculator work?

It takes the share price, shares outstanding, trailing free cash flow, your discount rate and terminal growth, then uses bisection — a numerical solver — to find the 5-year FCF growth rate that makes the DCF value exactly equal today's market capitalization.

What if the calculator says no solution was found?

It means the implied growth rate falls outside the −50% to +100% search range: either the market cap is below even a −50% decline scenario (deep pessimism priced in) or above a +100% growth scenario (extreme optimism). Try adjusting the discount rate or terminal growth to see how sensitive that boundary is.

How do I judge whether the implied growth is realistic?

Compare it to the company's historical FCF and revenue growth, and to the industry's outlook. If the market prices in 25% growth but the company has never grown faster than 10%, the bar is high. If it prices in 3% for a business compounding at 15%, expectations may be overly pessimistic.