![]() What has happened after all 6 steps is that the intrinsic value of a stock has been calculated for a single stock. This step takes the process down to a per share basis, making it comparable with the present share price of a single stock. So far this calculation has been based on numbers for the whole company. ![]() Input the number of shares outstanding.It would be unrealistic to include a high growth rate forever. As a rule of thumb you are recommended to use 2-3%, which is simply the estimated inflation. Determining the growth rate into perpetuity (forever) might seem like an impossible task.At the final step of the calculation, has provided you with a simple solution if you want to leave the input at a generic 10% level. For a new IT company you might require a larger return than for a large 10+ billion dollar net income company that has been around for over a century. While this might seem a bit redundant, it is a measure asking about how you deem the risk of the stock. Determining the discount rate is another way of asking which return you would require from a stock as an investor.For example, an IT company might be growing with double digit numbers for 5-10 years, followed by a more modest growth. Many companies grow at a rapid pace for only a short period of time until they mature. Determining the short run is interrelated with step 2.For very large companies you might only want to use a few percent, while smaller companies typically grow at a much larger pace. While the past can be used as an indicator, it is very important to consider the growth/maturity state of the company. Estimating the short term growth rate can also be approached by an assisting tool similar to the one in step 1.FCF can change a lot from one year to the next dependent on the investment level, so it is important to look back in time. has provided you with a tool that allows you to write a ticker, and automatically be taken to a site where you can copy paste the required data. Remember that FCF is similar to what Warren Buffett calls the owner’s earnings, which is the money that is actually flowing back to you as a shareholder. Estimating the Free Cash Flow (FCF) is the first step in the process and the investor is advised to look back at the 10 previous years to get an indication about the level of FCF the company can expect to make in the future. ![]() ![]() This is also why you will see that two people with the same information available will come up with two different numbers for the value of a stock. They are qualified guesses about the future – nothing more and nothing less. It is important to emphasize that when talking about estimates, estimates are exactly what you get. In the following lesson, a further elaboration of each step is shown. To get the easiest insight into how the calculator works and making it as user friendly as possible, the DCF calculator is broken down into 6 simple steps: The calculator typically first calculates for the coming 10 years, and then in addition it estimates the value of the stock if you hold it forever – this is also called perpetuity. The DCF calculator uses cash flows for valuation. The DCF calculator has a different approach to valuating a stock when compared to the intrinsic value calculator, which has been presented previously throughout the courses. ![]()
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