DCF Input Parameters
Understanding the Inputs That Drive Your Valuation
Every number in a DCF model is an assumption about the future. Understanding what each input represents — and how sensitive your valuation is to changes in it — is the difference between using a DCF as a rigorous analytical tool and simply generating a number that confirms your existing bias.
This page explains every input in MiniValuator, including what it means, why it matters, typical ranges, and its impact on the final intrinsic value estimate.
Free Cash Flow (FCF)
What it is: Free Cash Flow is the cash a company generates from operations after deducting capital expenditures required to maintain or grow the business. It represents the cash that is genuinely available to shareholders — for dividends, buybacks, debt repayment, or reinvestment.
Formula: FCF = Operating Cash Flow - Capital Expenditures
Where to find it: FCF is reported in a company's annual report (10-K filing) and is available on financial data sites such as Macrotrends, Wisesheets, or directly from SEC filings. MiniValuator pre-populates this field using the most recent annual FCF figure.
Typical ranges: FCF varies enormously by company size and sector. What matters more than the absolute figure is the trend — is FCF growing consistently, and is the FCF margin (FCF as a percentage of revenue) stable or expanding?
Impact on valuation: FCF is the foundation of the entire model. A higher starting FCF produces a higher intrinsic value estimate, all else being equal. Verify this figure carefully before running your model.
Revenue Growth Rate
What it is: The annual rate at which you expect the company's free cash flows to grow over the projection period. This is one of the most consequential inputs in the model and the one that introduces the most subjectivity.
Suggested range: 2%–15% for most established companies. High-growth technology companies may justify higher rates in the near term, but sustaining growth above 15% for a full 10-year period is rare and should be used with caution.
How to set it: Look at the company's historical FCF growth rate over the past 5–10 years. Cross-reference with analyst consensus estimates and management guidance. Consider whether the company operates in a growing or contracting industry.
Impact on valuation: Growth rate has a compounding effect over the projection period. The difference between an 8% and a 12% growth assumption can shift the intrinsic value estimate by 30–50% or more depending on the projection period. This is why the Sensitivity Heatmap is particularly useful for evaluating growth rate assumptions.
Discount Rate (WACC)
What it is: The discount rate is used to convert future cash flows into their present value equivalent. It reflects the minimum rate of return an investor requires to justify holding the stock given its risk. In practice, this is often approximated using the Weighted Average Cost of Capital (WACC), which blends the cost of equity and cost of debt weighted by their proportions in the company's capital structure.
Typical range: 8%–12% for most US-listed companies. Higher-risk companies, smaller companies, or companies with significant debt may warrant a discount rate toward the higher end. Blue-chip companies with stable cash flows may be discounted at the lower end.
How to set it: A common approach is to use 10% as a baseline — Warren Buffett has historically referenced this rate as a useful hurdle. Adjust upward if you believe the business carries above-average risk or if interest rates are elevated.
Impact on valuation: The discount rate and intrinsic value have an inverse relationship. A higher discount rate reduces the present value of future cash flows, producing a lower intrinsic value estimate. A 2-percentage-point change in the discount rate can shift intrinsic value by 15–25% depending on the projection period.
Terminal Growth Rate
What it is: After the projection period ends, the DCF model assumes the business continues growing in perpetuity at a fixed, stable rate — the terminal growth rate. This rate anchors the terminal value calculation, which often accounts for 60–80% of total intrinsic value in a standard 10-year DCF.
Typical range: 2%–3%. This range is intentionally conservative and is grounded in the idea that no company can grow faster than the overall economy indefinitely. A terminal growth rate above long-run nominal GDP growth (historically around 2–3% in the US) is generally considered aggressive.
A critical constraint: The terminal growth rate must always be set below the discount rate. If the terminal growth rate equals or exceeds the discount rate, the model produces mathematically invalid results (infinite or negative valuations).
Impact on valuation: Even small changes to the terminal growth rate have an outsized effect on intrinsic value because of its role in the perpetuity formula. Moving from 2% to 3% can increase intrinsic value by 10–20% depending on the discount rate used. Treat this input conservatively.
Projection Period
What it is: The number of years over which you explicitly project free cash flows before applying the terminal value. MiniValuator supports projection periods of 5 or 10 years.
Typical range: 5–10 years. A 10-year projection is standard in most professional DCF analyses. A 5-year projection is more conservative and reduces the weight placed on long-range assumptions that are harder to estimate reliably.
How to choose: Use a longer projection period for companies with predictable, stable cash flows where you have high confidence in your growth assumptions. Use a shorter period for companies in rapidly changing industries where visibility beyond 5 years is limited.
Impact on valuation: A longer projection period allows more compounding of the growth rate, generally increasing intrinsic value when the growth rate is positive. However, it also increases the model's sensitivity to growth rate assumptions — errors compound over time just as gains do.
Shares Outstanding
What it is: The total number of shares of common stock currently issued by the company. MiniValuator uses this figure to convert the total DCF value (enterprise value minus net debt) into a per-share intrinsic value estimate.
Where it comes from: MiniValuator auto-populates this field from the company's most recent financial data. Shares outstanding can also be found on the company's balance sheet or investor relations page.
Impact on valuation: Shares outstanding directly determines the per-share intrinsic value. A company that consistently repurchases shares reduces its share count over time, which increases the per-share value — a shareholder-friendly capital allocation practice. Conversely, companies that frequently issue new shares dilute existing shareholders and reduce per-share value.
Putting It All Together
Each input in MiniValuator interacts with the others. A high growth rate paired with a high discount rate may produce a moderate valuation. A low growth rate with a low discount rate may produce a similar result. Understanding these relationships is essential to using DCF analysis responsibly.
The Sensitivity Heatmap is the best tool available in MiniValuator for exploring how different combinations of growth rate and discount rate affect your intrinsic value estimate. Use it every time you run a valuation.