Tools › Investing › Stock Valuation › Reverse DCF › Example

Reverse DCF: the free-cash-flow growth a share price assumes (Apple fiscal 2023 figures, illustrative price)

ToolReverse DCF
SourceApple Inc. (2023). Form 10-K: Annual Report for the Fiscal Year Ended September 30, 2023. U.S. Securities and Exchange Commission, EDGAR accession 0000320193-23-000106, filed 3 November 2023. Cover page, consolidated balance sheet and statement of cash flows.
LevelUndergraduate

Problem

A company has 15,553 million shares, debt of 111,088 million against cash and marketable securities of 162,099 million, and produced 99,584 million of free cash flow last year (cash from operations 110,543 less capital spending 10,959). At a share price of 175.00, a discount rate of 9 % and a terminal growth of 3 %, what constant growth of free cash flow over ten years makes a two-stage discounted cash flow model equal the market's enterprise value?

Inputs to Enter

  • Share price 175.00 (a round illustrative figure for early November 2023, not a quotation); shares 15,553 million; net debt −51,011 million (net cash)
  • Last-year free cash flow 99,584 million; discount rate 9 %; terminal growth 3 %; explicit period 10 years; past growth 3.5 % a year (fiscal 2021 to 2023, comparison line only)
Open the Reverse DCF tool (loaded with this example)

Answers

  • Market equity value 175 × 15,553 = 2,721,775 million; enterprise value 2,721,775 − 51,011 = 2,670,764 million, 26.8 times the free cash flow
  • Trials: 8.5 % gives 2,603,764 (67,000 low); Newton steps to 8.836 % and 8.8318 %, where the model gives 2,670,764
  • Implied growth 8.83 % a year for ten years: FCF_1 = 108,379 (present value 99,430), FCF_10 = 232,140 (2.33 times last year's); the ten present values sum to 987,429
  • Terminal value 232,140 × 1.03 / (0.09 − 0.03) = 3,985,065, worth 1,683,335 today: 63.0 % of the value is in the terminal term
  • Implied growth at a discount rate of 8 % is 6.33 %, at 10 % it is 11.10 %; at terminal growth 2 % it is 10.17 %, at 4 % it is 7.24 %

Notes

The tool's default inputs are this case; press Submit. The balance-sheet and cash-flow figures are from the filing; the price, the discount rate and the terminal growth are illustrative, so the result describes these inputs and is not a statement about the company's shares. No printed example exists for this case: the test script checks it against an independent scipy root-finder and the identity that the forward model at the solved growth returns the market value. A calculator for education and analysis, not investment advice.