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Recent Changes to the GuruFocus DCF Calculator

January 31, 2012 | About:

DCF calculation is a popular tool for estimating the fair value of a company. GuruFocus DCF calculator is one of the most favorite tools of our users on GuruFocus. The details of the DCF calculation can be found here.

We have made the following changes to DCF calculator lately to reflect a more conservative approach of DCF calculation. Thanks to all users who have give feedback on the calculator.

1. Tangible book is not added to the fair value calculation. We have had quite a debate on this. Now the tangible book is not added to the results.

2. Terminal value calculation is limited to a certain number of years:

In our previous calculation of terminal value, the model assumes that the company will grow at the terminal growth rate forever. While the contribution from each of the far future years is small, they do add up. In this modification, we have set a default of 10 to the number of years that the company will grow at the terminal growth rate. After the terminal growth years the contribution will be cut to 0.

If a user is more optimistic with the company, they can adjust the years of the terminal growth.

With these modifications, the DCF fair value is given by this:

Growth value=E(0) x(1-x^n)/(1-x), where x=(1+g)/(1+d), n is the number of years business will grow at the rate of g; d is the discount rate. E(0) is the earnings of the company in the current year.

Terminal value=E(0) x^n * y(1-y^m)/(1-y), where y=(1+t)/(1+d), where m is the years of terminal growth; t is the terminal growth rate.

Please try the updated DCF calculator here.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now pre-order his book Invest Like a Guru on Amazon.

Rating: 3.3/5 (21 votes)



Adib Motiwala
Adib Motiwala - 5 years ago    Report SPAM
How about adding Net Cash per share ( Cash + ST Investments + LT investments - ST Debt - LT Debt - Pensions) to the calculated fair value. To account for Cash overseas you can give a 40% discount to the Cash + ST + LT investments.... Just a thought.....
Vipulgovil - 5 years ago    Report SPAM

I don't understand. There was a choice earlier. If we didn't like the book value we could have made it zero. Now that choice is gone. Have to calculate tangible book value manually from statements. How can the value of the company be just growth and terminal value? I don't know how you guys made that decision.
Gurufocus premium member - 5 years ago

We can display the tangible book there. You can add it to your value if you choose to.

Most of users like to ignore the tangible book value.

Now the tangible book value is displayed.

Gurufocus premium member - 5 years ago

We had a lot of debate about whether we should add net cash. But none of the calculation formula will satisfy all companies.

Adib Motiwala
Adib Motiwala - 5 years ago    Report SPAM
Vipulgovil - 5 years ago    Report SPAM

Thank you so much for adding back tangible book value.
Praveen Chawla
Praveen Chawla premium member - 5 years ago
I think these are good improvements and makes it a more useful tool.

It would be great if you could incorporate Canadian stock data - I am certainily willing to pay more for a subscription.
Carol Nadon
Carol Nadon premium member - 1 year ago

I approve for Canadian stock data.

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