What Is a Reverse DCF? What the Price Implies

A reverse DCF takes the current share price as given and solves for the growth in free cash flow that a discounted cash flow model needs to justify it. It turns a valuation from “what is this worth?” into “what is this price assuming?”.

On this site's model, at a 10% discount rate, Coca-Cola's price needs about 21% yearly growth to start and Adobe's needs shrinking cash flow. The answer is sensitive: moving the discount rate by 2 points moves it by 6 to 9.

How does a reverse DCF work, mechanically?

The site's DCF model projects free cash flow per share for 10 years. Growth starts at a chosen rate and fades in a straight line to 2.5% by year 10. Each year is discounted at 10%, and a terminal value, year-10 cash flow times 1.025 divided by (10% minus 2.5%), is discounted back as well.

A forward DCF fixes the starting growth and outputs a value. The reverse version fixes the value (the price) and searches for the starting growth. Value rises steadily with growth, so a simple search always finds one answer. At the baseline of 8% growth, each $1 of free cash flow is worth $17.08 in the model. The margin of safety method lists every assumption.

For the plain-language version with a worked Adobe example, read what growth does a share price imply. This post goes into the sensitivity and the limits.

What growth do real prices imply?

As of October 24, 2026, solving the site's model at its 10% discount rate gives:

“Above 40%” and “below -15%” are the ends of the range the site searches, not predictions. Apple's 28% and Coca-Cola's 21% are not forecasts either: they are what the price needs if you hold the model's 10% hurdle. Run any of them in the intrinsic value calculator.

How sensitive is a reverse DCF to the discount rate?

Very. The discount rate is the return you demand, and the price is fixed, so a higher rate means the cash flows must grow faster to still add up to the same price:

Each 2-point step in the discount rate moves the answer by 6 to 9 points for these four. The reason is the terminal value: at the 10% baseline it is 51% of the model's total, at 8% it is 61% and at 12% it is 43%. Whatever you assume about the far future, and the rate you discount it at, drives much of the answer. See terminal value.

What can a reverse DCF not tell you?

• Whether the starting cash flow is normal. Amazon, Alphabet and Microsoft show 57x to 170x free cash flow partly because heavy capital spending cuts it (Amazon's capex was 94% of its operating cash flow, as in what is EV/EBITDA). The model reads a depressed base as a need for extreme growth.
• Where growth will come from. It gives one number for the first year, then a fixed fade. It does not know about products, margins or competition.
• Whether the cash flow is real. It takes free cash flow as given; earnings quality checks are separate.
• Anything for banks, insurers, real estate or utilities. They are excluded, along with companies with zero or negative free cash flow. See excluded sectors.

So a reverse DCF is a way to state what a price assumes, in a number you can argue with. It is not a verdict, and it is not advice. The same cash flow seen as a yield is covered in free cash flow yield.

Reverse DCF FAQ