How to Do a DCF Valuation, Step by Step (with Apple as the Example)

Last updated October 29, 2026·7 min read

A discounted cash flow valuation sounds like professional machinery. It is one idea repeated with care: a company is worth the cash it will hand its owners in the future, and future cash is worth less than cash today. This guide walks the full calculation in six steps, using Apple as the worked example, with the figures Stock Valuation Studio printed for Apple on October 27, 2026. Follow the steps once and you can read, check, or challenge any DCF you meet.

What a DCF Is, in One Paragraph

The cash flow a DCF discounts is free cash flow to firm. It builds from reported free cash flow, the cash a business keeps after running itself and buying the equipment it needs: operating cash flow minus capital spending. Free cash flow to firm adds back after-tax net interest, interest paid less interest income, after tax, because that interest is a cost and a return of the whole firm rather than of the shareholders alone. A DCF projects that cash forward, converts each future year into today's dollars, and adds the results. The conversion rate is the discount rate, the return an investor requires for waiting and for taking the risk. Everything else in this guide is discipline around those three inputs: the cash today, the growth path, and the discount rate.

Step One: Start With Cash the Company Already Produces

Growth applied to a fictional base gives a fictional answer, so the first step is measuring the cash the company produces now. The Studio starts with trailing twelve months free cash flow to firm, built as the last four reported quarters of operating cash flow minus capital spending, plus after-tax net interest. When that figure is missing or not positive, it falls back to the latest fiscal year, and then to a normalized median of the record.

For Apple in late October 2026, trailing free cash flow to firm was about $136.7 billion, or $9.37 for each of its roughly 14.59 billion shares. That per-share cash figure is the base. Every later step grows it, fades it, or discounts it. Nothing else enters the model until the end.

Step Two: Project the Next Ten Years

No company grows at one rate forever, so the projection runs in two stages.

• Stage one covers years one through five. It uses the growth rate the company's own record supports, held between 0 and 15 percent. For Apple the calibrated rate was 9.3 percent a year.
• Stage two covers years six through ten. Growth fades toward the long-run rate. The Studio sets the second stage at the midpoint of the first stage and the perpetual rate, which for Apple was 6.1 percent.

Year one shows the mechanics. Apple's base of $9.37 a share, grown at 9.3 percent, gives year-one free cash flow of about $10.24 a share. Each later year compounds on the year before it, at 9.3 percent through year five and at the fading rate after that. Ten years of that path takes Apple's free cash flow to about $287 billion in year ten, a figure that matters again in step four.

Step Three: Discount Each Year Back to Today

A dollar of cash in year ten is not a dollar today. At a 9 percent required return, a dollar arriving in ten years is worth about 42 cents now. Discounting divides each projected year by the discount rate compounded for that many years, then adds the ten results.

Apple's discount rate in this print was 9.0 percent. The ten projected years, discounted at that rate, came to $1,329,006 million in today's dollars. That is the present value of the projected decade, and it is only part of the answer, because the company does not stop existing in year ten.

Step Four: Add the Terminal Value

The terminal value prices everything after year ten in one figure. The standard form assumes cash flow grows at one modest rate forever after the projection ends. The Studio uses 3 percent, a rate no healthy economy outgrows for long and no single company outgrows forever.

The formula is year-ten cash flow, grown one more year, divided by the discount rate minus the perpetual growth rate. For Apple: about $287 billion of year-ten cash flow, grown at 3 percent, divided by 0.09 minus 0.03, gives a terminal value of about $4,923 billion at year ten. Discounted back ten years at 9 percent, it is worth $2,079,483 million today.

Notice the weight of that number. The terminal value is 61.0 percent of Apple's enterprise value in this print. That is normal for a growing company, and it is why the terminal step gets its own guide in this series.

Step Five: Walk From Enterprise Value to One Share

Add the two present values and you have enterprise value, the worth of the whole business: $1,329,006 million plus $2,079,483 million equals $3,408,488 million, with the components rounded to the nearest million.

Shareholders do not own the business free and clear. They own what remains after debt, plus the cash on hand. Apple held more cash than debt, with net cash of $48,453 million, so equity value is $3,408,488 million plus $48,453 million, which is $3,456,941 million.

Divide by the share count, about 14.59 billion shares, and the answer is a value for one share: $236.87.

Step Six: Compare the Value With the Price

A value is only useful against a price. Apple traded at $342.58 on the day of this print. The gap, stated the way the Studio states it, is the margin of safety: value minus price, divided by value. That is ($236.87 − $342.58) / $236.87, which is −44.6 percent. The negative sign says the price stood about 45 percent above the value on the value's own scale. Because the price stands above the value here, the Studio headline labels this case Fair value vs price and measures the gap on the price instead: −30.9 percent on this print.

The same print gives the buy price at a required margin of 15 percent: $236.87 × 0.85, which is $201.34. That is the price at or below which Apple would have offered the cushion the setting demands. A separate guide in this series covers how to choose that cushion.

Run the Same Steps on Any Company

The sequence never changes: measure the cash, project two stages, discount, add the terminal value, walk to one share, compare with the price. The free DCF calculator runs these exact steps on any ticker, starting from the company's filed figures, and every input stays visible and editable, so you can test what a different growth rate or discount rate does to the answer. Afterward the value becomes a line to hold against the price as it moves, and a charting platform such as TradingView is the natural place to draw that line on the live chart.

Three cautions before you trust any DCF, including ours:

• The base must be real cash. A company with negative free cash flow gives the formula nothing sound to grow, and an honest tool says so instead of printing a number.
• The discount rate must clear the perpetual growth rate with room to spare. When the two nearly meet, the terminal value explodes and the answer means nothing.
• The model fits companies whose cash flow is the product. It does not fit banks, insurers, or real estate investment trusts, whose cash and debt play different roles. A later guide in this series covers those cases and what to use instead.

Sources

• Apple figures as printed by Stock Valuation Studio on October 27, 2026, built from Apple Inc. filings with the U.S. Securities and Exchange Commission, including the Form 10-K for the fiscal year ended September 27, 2025. Filings are public at the SEC EDGAR search page
• The projection path, stage rates, and bridge figures are the Studio's published print for Apple on that date. Prices and figures move with the market, so a fresh run will differ.