Reverse DCF Calculator
Enter a stock's current price and FCF per share to solve for the implied growth rate the market is pricing in. When implied growth exceeds realistic estimates, the stock may be pricing in optimistic assumptions.
Model Inputs
WACC must exceed terminal growth rate, which may be zero. Stage 2 growth = Stage 1 x 0.6 (natural slowdown modeled automatically).
Implied Stage 1 Growth Rate
15.4%
Strong growth priced in
Stage 2 Growth Rate
9.2%
Model price: $149.99
Value Attribution
Present Value Breakdown
How to read this
The market is pricing in 15.4% annual FCF growth for years 1-5, tapering to 9.2% in years 6-10, before settling at the 3.0% terminal rate. If you believe the company will grow FCF faster than 15.4%, the model suggests the current price underestimates fundamental value. If growth will be slower, the market may be pricing in optimistic assumptions.
For informational purposes only. Not financial advice. Model output depends on input assumptions.
Related Tools
Go deeper: multi-method valuation
A reverse DCF returns one number — the growth rate the current price corresponds to. It becomes a read when you set it against a fair value estimate built from several models rather than one. Equity Rank scores 3,000+ stocks that way, with no manual calculation required.
Formula reference
The exact formula this calculator uses to compute Reverse DCF (implied growth).
Solve for the stage-1 growth g₁ such that:Price = Σ FCFₜ ÷ (1 + WACC)ᵗ + PV(Terminal Value)with FCFₜ = FCF₀ × (1 + g₁)ᵗ (stage 1), g₂ = 0.6 × g₁ (stage 2)PriceCurrent share price (what the market pays today)FCF₀Current free cash flow per shareWACCDiscount rateg∞Terminal (perpetual) growth rate- Instead of assuming a growth rate, it backs out the growth the current price already implies.
- Comparing that implied growth to what a business can plausibly deliver shows how demanding today’s price is.
- A high implied growth means the market is pricing in an aggressive trajectory.
Educational reference only — not investment advice. See the glossary for plain-English definitions of each term.
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How reverse DCF analysis works
Understanding what the market is implying rather than what you project.
Start with price
A standard DCF takes a growth assumption and produces a value. A reverse DCF takes the market price as the "answer" and works backwards to find what growth assumption the market is using.
Solve for implied growth
The calculator iterates over possible growth rates using binary search. It finds the single rate g that, plugged into the two-stage DCF model, produces a value equal to the current stock price.
Compare to your view
The implied rate tells you what the market expects. If you believe the company will grow faster, there may be a model-based value opportunity. If slower, the market may be pricing in optimistic assumptions.
Limitations of reverse DCF
Most useful for
- Companies with stable, positive free cash flow
- Stress-testing market valuation assumptions
- Comparing implied growth vs. historical growth rates
- Identifying valuation asymmetry between names
Less reliable for
- Negative or near-zero FCF companies
- Early-stage, pre-profit businesses
- Companies with highly volatile cash flows
- Financials where FCF definition differs materially
Frequently asked questions
A reverse DCF calculator works backwards from a stock's current market price to determine what FCF growth rate the market is implying. Instead of projecting cash flows forward and solving for value, you start with the price and solve for the growth assumption embedded in it.
The calculator uses a two-stage DCF model with binary search iteration. It finds the Stage 1 growth rate (years 1-5) that produces a model value equal to the current stock price. Stage 2 (years 6-10) automatically tapers to 60% of Stage 1 to reflect natural business maturation.
Use trailing twelve-month (TTM) free cash flow per share: (operating cash flow - capex) / shares outstanding. Find this in the cash flow statement or on financial data sites. Some analysts prefer normalized FCF that smooths out one-time items.
Most established S&P 500 companies grow FCF at 5-15% annually over a cycle. Implied rates above 20% represent aggressive market expectations. Implied rates above 30% are historically rare for large companies to sustain. Comparing implied vs. historical 5-year FCF CAGR is a useful reference point.
WACC varies by company risk and capital structure. A simple starting point: 8-10% for large, stable US companies; 10-14% for mid-cap or higher-risk names; 6-8% for low-risk utilities or consumer staples. Use the WACC Calculator to estimate yours precisely.
Related valuation calculators
No single model captures fair value. Triangulate with DCF, Graham Number, Margin of Safety, and asset-based methods to build a complete valuation picture.
Learn more about how Equity Rank weights these models in the methodology or browse the full free tool directory. Still have questions? See the FAQ.
Read the method behind this calculator
Each explainer walks through the formula, the inputs it needs, and the cases where it stops being informative.
More write-ups in the blog, or see how the models are weighted in the methodology.