STOCK VALUATION CALCULATOR
Are you paying too much for a stock? This tool can help you find out.
How to use this calculator
This calculator estimates the intrinsic value of a stock (how much the underlying business and assets are worth).
Fill in the required fields and the calculator will run a discounted cash flow analysis to come up with a current value.
It runs two scenarios side by side — a conservative one and an optimistic one — so instead of a single number, you get a sensible valuation range.
If you are unsure how to find the data required, each field is explained at the bottom of the page.
The company
All dollar figures in millions — find them on Yahoo Finance
Your growth assumptions
Run a cautious case and a hopeful case — the truth is usually in between
Intrinsic value calculation
Both scenarios, each year discounted back to today at your required return
| Year | Conservative FCF ($m) | Present value ($m) | Optimistic FCF ($m) | Present value ($m) |
|---|
A worked example
How does valuation work?
First of all, remember stock valuation is much more art than it is science. Nobody ever comes up with the same answer.
Say a company throws off $10 million in free cash flow a year, and you reckon it'll grow that by 5% a year for a while.
Feed in your discount rate - the annual return you demand for taking the risk, say 10% - and the calculator works backward to what those future cash flows are worth in today's dollars. That number is your estimate of what the whole business is actually worth.
Compare it to what the market's charging. If the business is worth $150m by your maths and the market's selling it for $100m, that gap is your margin of safety. If it's the other way around, you're overpaying.
Plug in the numbers for a company you're eyeing and see what falls out.
What most people get wrong about valuation
A valuation is only as good as the guesses you feed it. Garbage in, garbage out.
Change the growth rate from 5% to 8%, or the discount rate from 10% to 8%, and the "value" can double. So anyone who hands you a single precise number - "this stock is worth exactly $4.37" - is kidding themselves. This is a tool for thinking, not a crystal ball.
The point isn't to nail the exact figure. It's to work out roughly what a business is worth, then only buy when the price is well below that - so you've got room to be wrong and still come out fine. That gap is the margin of safety, and it's the whole game.
And remember what you're buying: a slice of a real business, not a ticker that goes up and down. If the business is mediocre, no discount rate makes it a good investment. Price is what protects you; quality is what pays you.
There are a lot of moving parts in stock valuation, so below are some guides on finding the data you need.
How To Find Free Cash Flow
Free cash flow refers to the amount of excess cash a business generates.
Free cash flow is calculated as follows:
Operating Cashflow - Capital Expenditure
You can find both of these figures on a company's Cash Flow Statement.
A summarised Cash Flow Statement for listed companies can be easily accessed for free on Yahoo Finance.
As an example, here is the Cash Flow Statement for Briscoes showing a current free cash flow of $82.3 million:
How To Find A Company's Cash Balance
A company's cash balance refers to the free cash balance available in its bank accounts.
You can find this figure on the Statistics page on Yahoo! Finance.
As an example, here is the Statistics page for Briscoes, showing a cash balance at the mrq (most recent quarter) of $97.58 million.
How To Find A Company's Debt
A company's cash balance refers to the free cash balance available in its bank accounts.
You can find this figure on the Statistics page on Yahoo! Finance.
As an example, here is the Statistics page for Briscoes, showing a total debt balance at the mrq (most recent quarter) of $285.79 million.
How To Estimate A Company's Growth Rate
There is no single way to estimate a company's growth rate.
Here are some common ways:
- Look at the previous years and use its growth in the past to estimate its growth in the future.
- Use growth rates that analysts have predicted.
- Use an industry growth rate
- Assume the company will simply grow with inflation (best for mature companies)
Yahoo Finance will often summarise analyst growth rates for you. As an example, here is the Analysis page for Briscoes on Yahoo Finance, showing a forecasted growth rate for the next 5 years of 12%:
You could also look at the Cash Flow Statement and see how much they have grown in the last few years.
Here is a look at Briscoes Cash Flow Statement, where you can see they have grown in the last 3 years (between 10% to 30% per year).
How To Choose An Acceptable Return
This is completely up to you as an individual investor.
Ideally when it comes to stocks, you would the return to be higher than the interest rate you get from the bank, to compensate you for the additional risk that share investing entails.
Therefore (as an example) if the bank is currently offering savings rates of 4%, you might want to demand double that (8%) from the sharemarket.
Another useful data point is the NZX 50 has returned around 10% per year between January 2000 and January 2020. This could be considered a reasonable rate of return for a retail investor.