FREE TOOL
Reverse DCF Calculator
Instead of guessing a growth rate to arrive at a fair value, start from the current price and find the growth rate the market is betting on.
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COMPANY DATA
YOUR ASSUMPTIONS
WHAT THE MARKET IS PRICING IN
IMPLIED FCF GROWTH RATE
-1.9%
per year for 10 years
The market expects free cash flow to shrink from here. If the business merely holds steady, the stock could be undervalued.
For context: fewer than 1 in 10 large companies have sustained 20%+ FCF growth for a decade.
WHAT THAT GROWTH IMPLIES
Price × shares ÷ current FCF
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How to Use This Calculator
Search for a stock to auto-fill the current price, shares outstanding, and annual free cash flow, or enter them manually from the company's latest financial statements. Use trailing twelve month FCF where possible.
Set the discount rate to the annual return you require — typically 8-10% for large stable companies and 10-12% or more for riskier ones. Keep the terminal growth rate at or below long-term GDP growth (2-3%).
The calculator then solves for the constant FCF growth rate that makes the DCF value exactly equal the current price. That number is the market's embedded expectation — your job is simply to judge whether it is plausible.
How Reverse DCF Works
REVERSE DCF
Solve for g: DCF(FCF, g, r, N, terminal) = Current Price
A traditional DCF projects free cash flow forward at an assumed growth rate, discounts each year back to present value, adds a terminal value for everything beyond the projection period, and divides by shares outstanding to get a fair value per share. The weak link is always the growth assumption — small changes swing the result dramatically.
A reverse DCF runs the same model backwards. The price is known; the growth rate is the unknown. Because DCF value rises steadily as the growth rate rises, there is exactly one growth rate that makes the model output match the market price. This calculator finds it numerically by bisection, narrowing the range between −30% and +80% per year until the DCF value matches the price to within a cent.
The output is not a fair value — it is a mirror. It shows you the expectations already baked into the stock, which you can then compare against the company's track record and against how often businesses in general achieve that kind of growth.
How to Judge the Implied Growth
Market prices in decline. The price only makes sense if FCF shrinks. If the business can merely tread water, the stock is potentially cheap.
Modest expectations. Growth around nominal GDP. A hurdle most healthy, established businesses can clear.
Solid growth priced in. Clearly above-average growth is required. Strong companies manage it, but there is little margin for disappointment.
Demanding expectations. Sustained growth at this pace over a decade is rare and requires exceptional execution.
Extremely demanding. Only a handful of companies in history have compounded FCF this fast for this long. The price assumes near-perfection.
The power of reverse DCF comes from base rates. Studies of long-term corporate performance consistently find that fewer than 1 in 10 large companies sustain 20%+ free cash flow growth for a full decade, and even double-digit growth over ten years puts a company in a small minority. When the implied growth rate demands something history says is rare, the burden of proof shifts to the bull case.
Conversely, when a solid business trades at a price that implies stagnation or decline, the market is offering you a low bar. The question stops being "how fast will this company grow?" and becomes "is this company really going to shrink?" — often a much easier question to answer.
Frequently Asked Questions
What is a reverse DCF?
A reverse DCF flips the traditional discounted cash flow model. Instead of forecasting a growth rate to estimate what a stock is worth, it takes the current market price as given and solves for the free cash flow growth rate needed to justify that price. The result tells you what expectations are already embedded in the stock.
Why is reverse DCF useful?
It removes the biggest source of bias in valuation: your own growth forecast. Rather than guessing whether a company will grow 8% or 15%, you ask a simpler question — is the growth rate the market is already pricing in plausible? Judging an expectation against history is often easier than producing a forecast from scratch.
What FCF growth rate is realistic?
Most large, established companies grow free cash flow in the single digits over long periods, roughly in line with nominal GDP plus some market share gains. Fewer than 1 in 10 large companies have sustained 20%+ FCF growth for a full decade, so implied growth above that level should be treated with real skepticism.
Does a high implied growth rate mean I should sell?
Not automatically. A high implied growth rate means expectations are demanding, and some exceptional businesses do beat demanding expectations for years. It is a signal to scrutinize the investment case harder, not a mechanical sell trigger. Use it alongside qualitative judgment about the company's competitive position.
What discount rate should I use in a reverse DCF?
Use the annual return you require from the investment. A common range is 8-10% for large stable companies and 10-12% or more for riskier businesses. A higher discount rate raises the implied growth rate, because the company must grow faster to deliver that required return from today's price.
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This calculator is for educational purposes only and does not constitute investment advice. The implied growth rate depends on simplified assumptions and user inputs. Always do your own research before investing.