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 the full forecast 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 five-year forecast. The difference between an 8% and a 12% growth assumption can shift the intrinsic value estimate by 30% or more. This is why the Sensitivity Heatmap is particularly useful for evaluating growth rate assumptions.

Discount Rate

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. MiniValuator uses a single discount rate that you set directly, defaulting to 10%. It does not compute a Weighted Average Cost of Capital (WACC) for you — if you prefer a WACC-based figure, you are free to calculate it separately and enter it as your discount rate.

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: The default of 10% is a common baseline — Warren Buffett has historically referenced this rate as a useful hurdle. Adjust it 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%.

Terminal Value Assumption

What it is: After the five-year forecast ends, the DCF model needs an estimate of all the cash flows beyond it — the terminal value, which typically accounts for the majority of total intrinsic value. MiniValuator offers two ways to set it. By default it applies an exit multiple: the final-year FCF multiplied by a price-to-FCF (P/FCF) multiple, seeded from the company's current P/FCF and capped at 30 to avoid runaway figures. Alternatively, you can switch to a perpetuity growth rate, which assumes the business keeps growing forever at a fixed, stable rate.

Typical range (perpetuity growth): 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 perpetuity growth rate above long-run nominal GDP growth (historically around 2–3% in the US) is generally considered aggressive.

A critical constraint: When using the perpetuity method, the growth rate must always be set below the discount rate. If it gets too close to the discount rate, the terminal value balloons and the estimate loses any anchoring, so MiniValuator stops the calculation once the gap between the two falls below 1%.

Impact on valuation: Whichever method you pick, the terminal value drives most of the result, so the assumption deserves scrutiny. With the perpetuity method, even small changes have an outsized effect — moving the growth rate 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 the model explicitly projects free cash flows before applying the terminal value. MiniValuator uses a fixed five-year projection period.

Why five years: A shorter, fixed horizon is deliberately conservative. It keeps the explicit forecast within a window most people can reason about, and it limits the weight placed on far-out, year-by-year assumptions that are hard to estimate reliably. Cash flows beyond year five are captured through the terminal value rather than projected individually.

Impact on valuation: Across the five-year forecast, the growth rate compounds year over year, so a positive growth assumption lifts intrinsic value while a negative one drags it down. Because the explicit window is short, the terminal value assumption carries most of the weight in the final estimate.

What it is: The annual rate at which the company's share count is expected to change. MiniValuator works entirely on a per-share basis — FCF is modeled per share rather than as a company-wide total — so it does not convert an enterprise value into a per-share figure or divide by shares outstanding. Instead, this input adjusts your per-share FCF each year to reflect buybacks or dilution. A negative rate (a shrinking share count from buybacks) lifts per-share FCF; a positive rate (dilution from new issuance) reduces it.

How to set it: Look at how the company's share count has trended over the past several years, available on its balance sheet or investor relations page. A company with a consistent buyback program might warrant a small negative rate; one that issues stock heavily for compensation or acquisitions might warrant a small positive rate. Leave it at zero if you expect the share count to stay roughly flat.

Impact on valuation: Because the model is per-share, share count changes flow straight into the result. A company that consistently repurchases shares raises its per-share value over time — 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 terminal value assumption affect your intrinsic value estimate. Use it every time you run a valuation.