Reverse DCF — what growth does this price require?
In short
What growth the current price already assumes.
Interactive: reverse DCF — what growth does this price require?Medium
A discounted cash flow model takes assumptions and returns a value, which invites you to tune the assumptions until you like the answer. Running it backwards is more honest: take the price as given and solve for the growth rate it already assumes.
- Implied growth
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- Current multiple
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- Cash flow required by then
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- Growth multiple
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- Reading
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- What this is
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The output is a translation, not a valuation: it converts a price into the assumption required to justify it, and leaves the judgement to you. This is the arithmetic that was available in 1999 and would have returned uncomfortable numbers — see the dot-com bust.
The idea behind it
This calculator belongs to Valuation & Cost of Capital, where the mechanism it computes is explained step by step, with the formula, what each input means and where the simple model stops being right. Everything is computed in your browser; nothing you type is sent anywhere.
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