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Shabbir is a developer in the field of Applications, web as well as database designing and is devoted to the optimization and usability of the code. Apart from doing some Share trading he maintains SEO forum and is a C++ addict.

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DCF to calculate fair value of share price

June 22nd, 2008 • Related • Filed Under

Image Credit : Jan Brasna

The discounted cash flow (or DCF) approach describes a method of valuing a project, company, or financial asset using the concepts of the time value of money. All future cash flows are estimated and discounted to give them a present value. The discount rate used is generally the appropriate cost of capital, and may incorporate judgments of the uncertainty (riskiness) of the future cash flows.

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Pingback by future value calculator on 26 June 2008:

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Pingback by n q fair value on 26 June 2008:

[...] value of money. All future cash flows are estimated and discounted to give them a present value.http://shabbir.in/dcf-to-calculate-fair-value-of-share-price/Fair ValueFair value – Definition of fair value on Investopedia – 1. … tailor-made trading [...]
Pingback by cash flow projections on 27 June 2008:

[...] value of money. All future cash flows are estimated and discounted to give them a present value.http://shabbir.in/dcf-to-calculate-fair-value-of-share-price/Preparing a Breakeven Analysis, Cahs Flow Statement &amp Income …File Format: PDF/Adobe [...]
Comment by libran_1234 on 21 July 2008:

hey cool calci, however whats the discount rate in your calculation??
Comment by Shabbir Bhimani on 22 July 2008:

I have kept it as 11.
Comment by libran_1234 on 22 July 2008:

the fair value calculated is what the price should be today or after three years
Comment by Shabbir Bhimani on 22 July 2008:

Today ofcourse because the Algo of DCF is if you have some growth parameters for some years you can calculate the fair price of the stock
Pingback by future value on 25 July 2008:

[...] value of money. All future cash flows are estimated and discounted to give them a present value.http://shabbir.in/dcf-to-calculate-fair-value-of-share-price/Memory Glass&39 expansion strategy calls for lots of cash – Los Angeles Times… doesn&39t mean a [...]
Pingback by Stock Valuation : Mutual Fund and Stock Market Blog on 27 July 2008:

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Pingback by fair value calculation on 3 August 2008:

[...] value of money. All future cash flows are estimated and discounted to give them a present value.http://shabbir.in/dcf-to-calculate-fair-value-of-share-price/City bonuses face fair value overhaul vnunet.com Gavin Hinks, Accountancy Age , Thursday 19 June [...]
Comment by Feroz on 12 August 2008:

The article should also include how P/E is calculated. As P/E is a ratio that investors throw around with confidence as if it told the complete story. Of course, it doesn’t tell the whole story (if it did, we wouldn’t need all the other numbers.) The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular stock analysis ratio, although it is not the only one you should consider. You calculate the P/E by taking the share price and dividing it by the company’s EPS (Earnings Per Share that we saw above)

P/E = Stock Price / EPS

For example: A company with a share price of Rs.40 and an EPS of 8 would have a P/E of: (40 / = 5
Pingback by financial calculators on 11 September 2008:

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Pingback by conception calculator on 16 September 2008:

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Comment by singhboy on 6 October 2008:

hello shbbir dear. I read about Discounted cash flow analysis on investopedia. I want to learn this analysis tool but problem is that m not able to find required figures like capiatal expenditure ana ‘bete’ value of companies. Indian companies dont provide capital expenditure amount on their Cash flow statements. So will u pls tell me where to get these figuers from? also tell me how did u develop this tool to find out net present value of any company without knowing free cash flow and ‘beta value’ of that particular company? Do u use another unique method of Discounted cash flow and not which is described on investopedia.com?
Comment by singhboy on 6 October 2008:

also if possible pls me ur mobile no @ gindidhillon#gmail.com I promise im not spammer n wont reveal ur mobile no. to any1. Im 24 From punjab. i want to ask u sum questions on fundamental analysis. I emalied to many ppl online n posted in online forums but none could satisfy me. I guess less than 1% indian investors would have heard the term “Discounted cash flow analysis”. Not even my brokers (guys working in sharekan, hdfc securities and karvy stock broking) know anything about fundamental analysis.
Comment by Shabbir Bhimani on 6 October 2008:

Check out the about page and you will find my mobile number.
Comment by Fathaulla on 15 April 2009:

Dear Mr. Shabbir,

We are a new company (JSC closed)and expect to make profit every year. Some of the shareholders want to sell their shares and would like me to calculate the share value for the company considering coming 15 years cashflow. Please advise.

Thanks
Comment by Shabbir Bhimani on 18 April 2009:

There are many algorithms to calculate the fair value of a share price and one of them is DCF. I would suggest you use any one of them to do it.

Using the algo is not important but when doing you should not only use the stock in concern but also use the same algo over other competitors stock and see which one could be underperformer / outperformer.

Thanks
Shabbir
Comment by prasanta on 31 May 2009:

Sir, can you provide this calculator utility for download.

Thanks in advance
Comment by Shabbir Bhimani on 11 June 2009:

I do not have it in downloadable format.
Comment by TIP Guy on 6 September 2009:

Shabbir,

A good and simple calc. You many want to include (1) discount rate as a variable, so that users can modify it (2) display result in graphical format instead of tabular data.

You have a good setup here.

Best Wishes,
Comment by Shabbir Bhimani on 6 September 2009:

Yes they are good suggestions and I would try to add them soon
Comment by mathews jacob on 17 October 2009:

%STAKES SALE
Posted by : mathews jacob on 10/16/2009
For Finanzial wizards..
what is the best method of buying a 10% stake in a blue -chip like microsoft,coco-cola.exxon mobil?

Buffet advises buying undervalued stock..discounted..
Some S/w owners like moorthy of infosys gifts 2% stake,($300 million) to daughter.

Are these shares in Paper format, or computer DEMAT or as a title deed format..Pls clarify….
Comment by Shabbir Bhimani on 17 October 2009:

Demat Format but if you want to buy such a large stake you need to inform the exchange as times.
Comment by mathews jacob on 18 October 2009:

THAnk you, Shabbir,

I notice that Stakes passon by inheritance, like MUkesh of Reliance has gifted small 2% stakes to his kids.

Sometimes, By INfluence(wasta, in arabic), Russian Abramovich, got a large 30% stake of Sibneft OIl, under the loans for shares program of Yeltsin, under privatisation .

Buffet , DCF method to spot undervalued …and then use Insurance cash from his GEICO,..to invest..is a third method.

Are these 3 (inheritance, Influence,,or DCF ) the only methods to get
Blue chip stakes …..?
Comment by Shabbir Bhimani on 18 October 2009:

There can be one, There can be many but the important thing is they are all bookish type of method and actual data can vary and so you should use them to find good stock but invest what you think has good future. This data work on past data but you are investing in future.
Comment by mathews jacob on 4 November 2009:

Shabbir,
Mukesh of Reliance has 1.8 millionshares.whereas the total outstanding of reliance is 1.5 billion shares as of date .MUkesh holds 30% of reliance shares ..are his 1.8 “preferred” shares, so that they are converted to common stock by multiplication x 250, say..
if so then he actualy holds 1.8 X 250= 500 million shares…
Pls clarify…

Also , from India is it posssible to buy american shares, coke ,Microsoft etc…How and is it worth taking the risk..
Comment by Shabbir Bhimani on 4 November 2009:

Mathews I could not understand your calculation but about investing in foreign companies I once had thought of investing in Google but the way Rupee moved I would not do that anyway because all your profit can be wiped off with a 10% move in Rupee.

I have my own online biz which does very well when India Crashes because I get more INR for the same $$ earned.
Comment by mathews jacob on 5 November 2009:

Mukesh of Reliance has 1.8 million shares.whereas the total public outstanding shares of reliance is 1.5 billion shares as of date .MUkesh holds 30% of reliance shares ..as per logical calcualtion, you would then that he has 30% of 1.5 billion=500 million shares….this is how i thought…
in the 2009..annual report mukesh is stated to have only 1.8 shares.THis belong to promoter category..and not general public..
how do you convert (math-wise) ..between promoter and public shares…pls explain…
Comment by mathews jacob on 5 November 2009:

PLS CORRECT.AS.

in the 2009..annual report mukesh is stated to have only 1.8 MILLION shares.THis belong to promoter category..and not general public..
how do you convert (math-wise) ..between promoter and public shares…pls explain…
Comment by Shabbir Bhimani on 5 November 2009:

1.5B+ shares is correct but when it comes to promoter stake of 1.8M shares I guess I am not sure but this would not be Mukesh’s share or else he could not be among the top billionaires of the world.
Comment by Taral on 21 January 2010:

Mr shabbir u should check your DCF Calculator, its not woking. Appreciate it if u fix it.
Comment by Shabbir Bhimani on 21 January 2010:

Taral, thanks for pointing that out and its fixed now.
Comment by Taral on 21 January 2010:

Thank u bunch Mr Shabbir for fixing the calculator.
Comment by Shabbir Bhimani on 22 January 2010:

The pleasure is all mine.
Comment by jihalpatel on 24 July 2010:

shabbir sir, i m a student of IT engeering and i have a project of making a website which advices an investor that on which shares he/she shud invest to get maximum profit… so can u plz send me som algorith which can calculate variations in the prices of shares by examining the historical data of stock market ? my email add is jihalpatel@yahoo.com

thanks in advance…
Comment by Shabbir Bhimani on 24 July 2010:

Hi Jihal, there is no one shot algorithm to rank the best and the worst stock or else all financial advisor’s job would be at stake.