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Reverse DCF Calculator Formula Breakdown
Enterprise Value (Market Cap + Total Debt - Cash & Equivalents).
Base Year Trailing Twelve Months (TTM) Free Cash Flow.
The implied compound annual growth rate (CAGR) solved numerically to match current stock price.
Weighted Average Cost of Capital discount rate (default 9.0%).
Perpetual Gordon Growth value beyond year 5 assuming a 2.5% long-term economic growth rate.
How to Calculate Reverse DCF Step-by-Step
Extract current stock price, shares outstanding, cash, debt, and TTM Free Cash Flow.
Calculate Enterprise Value and establish baseline WACC and perpetual terminal growth.
Execute a numerical root-finding algorithm to solve for the exact annual growth rate (g) that makes DCF fair value equal to the current market price.
Compare the implied growth rate against historical revenue CAGR and industry norms to determine if expectations are conservative, reasonable, or aggressive.
How to Interpret the Result
Frequently Asked Questions
What is a Reverse DCF model?
A Reverse DCF flips traditional discounted cash flow valuation on its head. Instead of estimating future cash flows to derive intrinsic value, it takes today's stock price and calculates the exact growth rate required to justify that valuation.
Why is Reverse DCF often more reliable than a regular DCF?
Standard DCF models are notoriously sensitive to subjective analyst assumptions. Reverse DCF eliminates guesswork by showing you exactly what expectations are already priced into the stock.
What is an aggressive implied growth rate?
For mature businesses, implied growth rates above 15% are demanding. For mega-cap tech, implied rates exceeding 25%–30% require near-flawless execution and expanding market share.
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