Stock Intrinsic Value Calculator

Stock Intrinsic Value Calculator (DCF Model)

function calculateIntrinsicValue() { var currentFCF = parseFloat(document.getElementById("currentFCF").value) * 1000000; // Convert millions to actual value var highGrowthRate = parseFloat(document.getElementById("highGrowthRate").value) / 100; var highGrowthYears = parseInt(document.getElementById("highGrowthYears").value); var terminalGrowthRate = parseFloat(document.getElementById("terminalGrowthRate").value) / 100; var discountRate = parseFloat(document.getElementById("discountRate").value) / 100; var sharesOutstanding = parseFloat(document.getElementById("sharesOutstanding").value) * 1000000; // Convert millions to actual value if (isNaN(currentFCF) || isNaN(highGrowthRate) || isNaN(highGrowthYears) || isNaN(terminalGrowthRate) || isNaN(discountRate) || isNaN(sharesOutstanding) || currentFCF <= 0 || highGrowthYears <= 0 || sharesOutstanding <= 0 || discountRate <= 0) { document.getElementById("result").innerHTML = "Please enter valid positive numbers for all fields."; return; } if (discountRate <= terminalGrowthRate) { document.getElementById("result").innerHTML = "Discount Rate must be greater than Terminal Growth Rate for the model to be valid."; return; } var totalPresentValue = 0; var projectedFCF = currentFCF; var lastHighGrowthFCF = 0; // Calculate Present Value of Free Cash Flows during the high growth period for (var i = 1; i <= highGrowthYears; i++) { projectedFCF *= (1 + highGrowthRate); var pvFCF = projectedFCF / Math.pow((1 + discountRate), i); totalPresentValue += pvFCF; if (i === highGrowthYears) { lastHighGrowthFCF = projectedFCF; } } // Calculate Terminal Value // TV = FCF_N+1 / (Discount Rate – Terminal Growth Rate) var fcfNextYearAfterHighGrowth = lastHighGrowthFCF * (1 + terminalGrowthRate); var terminalValue = fcfNextYearAfterHighGrowth / (discountRate – terminalGrowthRate); // Discount Terminal Value back to present var pvTerminalValue = terminalValue / Math.pow((1 + discountRate), highGrowthYears); totalPresentValue += pvTerminalValue; var intrinsicValuePerShare = totalPresentValue / sharesOutstanding; document.getElementById("result").innerHTML = "

Calculation Results:

" + "Total Intrinsic Value: $" + (totalPresentValue / 1000000).toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + " million" + "Intrinsic Value Per Share: $" + intrinsicValuePerShare.toLocaleString(undefined, { minimumFractionDigits: 2, maximumFractionDigits: 2 }) + ""; }

Understanding Stock Intrinsic Value

The intrinsic value of a stock represents its true, underlying worth, independent of its current market price. It's the value an investor would assign to a company based on a thorough analysis of its fundamentals, rather than market sentiment or short-term fluctuations. Calculating intrinsic value is a cornerstone of value investing, helping investors identify undervalued or overvalued stocks.

Why is Intrinsic Value Important?

Market prices can be influenced by many factors, including news, speculation, and investor emotions, often leading to prices that deviate from a company's actual worth. By estimating intrinsic value, investors can:

• Identify Opportunities: Find stocks trading below their intrinsic value, suggesting they are undervalued and could offer significant returns.
• Avoid Overpaying: Prevent buying stocks that are trading above their intrinsic value, which might lead to losses if the market corrects.
• Make Informed Decisions: Base investment choices on fundamental analysis rather than fleeting market trends.

The Discounted Cash Flow (DCF) Model

One of the most widely used methods for calculating intrinsic value is the Discounted Cash Flow (DCF) model. The core idea behind DCF is that a company's value is derived from the sum of all its future free cash flows, discounted back to their present value. This calculator uses a simplified two-stage DCF model:

1. High Growth Period: Projects free cash flows for a specific number of years during which the company is expected to grow at a higher rate.
2. Terminal Value: Estimates the value of all cash flows beyond the high growth period, assuming a stable, perpetual growth rate.

Inputs Explained:

• Current Annual Free Cash Flow (FCF): This is the cash a company generates after accounting for cash outflows to support its operations and maintain its capital assets. It's a key measure of financial performance and liquidity. The calculator expects this value in millions of dollars.
• High Growth Rate: The estimated annual percentage rate at which the company's free cash flow is expected to grow during its initial, more rapid growth phase.
• High Growth Period (N years): The number of years for which the company is expected to sustain the specified high growth rate. Typically, this ranges from 3 to 10 years.
• Terminal Growth Rate: The constant, perpetual growth rate assumed for the company's free cash flow after the high growth period ends. This rate is usually modest, often aligning with the long-term inflation rate or GDP growth rate of the economy.
• Discount Rate (WACC or Required Return): This is the rate used to discount future cash flows back to their present value. It represents the investor's required rate of return or the company's Weighted Average Cost of Capital (WACC). A higher discount rate implies a higher risk or opportunity cost, leading to a lower intrinsic value.
• Shares Outstanding: The total number of a company's shares currently held by all its shareholders, including institutional investors and restricted shares. This is used to convert the total intrinsic value into a per-share value. The calculator expects this value in millions.

How the Calculation Works:

The calculator first projects the Free Cash Flow for each year of the high growth period and discounts each year's FCF back to its present value using the discount rate. Then, it calculates the Terminal Value, which represents the present value of all cash flows beyond the high growth phase, assuming the terminal growth rate. Finally, it sums all these present values to get the Total Intrinsic Value of the company and divides it by the number of shares outstanding to arrive at the Intrinsic Value Per Share.

Remember, the DCF model relies on future projections, which inherently involve assumptions. The accuracy of the intrinsic value heavily depends on the realism of your input estimates.