Reverse DCF: the growth rate a share price implies

The formula

Everything starts from the ordinary two-stage discounted cash flow. Free cash flow grows at g₁ for the first stage, then fades to g₂, and everything after the final year is compressed into a terminal value using the Gordon growth formula.

There is no closed-form solution for g₁ — the growth rate appears inside a sum of powers and inside the terminal value — so it is found numerically. Value per share increases with g₁ whenever the discount rate exceeds terminal growth and starting free cash flow is positive, which means a bisection search over a wide bracket converges on exactly one rate. That is what the EvidInvest calculator runs on every keystroke.

Worked end to end: Apple, FY2025 10-K

Every input below is read from Apple Inc.'s Form 10-K for the fiscal year ended 27 September 2025 — accession 0000320193-25-000079, filed 31 October 2025. Nothing here is estimated or smoothed.

Step 1 — the filed inputs

Net debt is negative here because Apple's cash and marketable securities exceed its commercial paper and term debt, so the net cash is added to enterprise value rather than subtracted.

Step 2 — the assumptions you have to make

These five are judgments, not facts, and every one of them moves the answer. They are written down here so the result can be reproduced and disagreed with.

Step 3 — solve for growth

Bisecting on Stage 1 growth until value per share equals $250.00 lands on 20.4% a year for five years. At that rate the projection and its present values look like this:

Step 4 — hold it against what was filed

The implied number only means something next to the record. Free cash flow, computed the same way from the same filing's comparative columns:

So the arithmetic says: at $250 a share, an 8.5% discount rate and a 4% fade, the price carries five years of 20.4% annual free-cash-flow growth, while the last three filed years ran $99.6B, $108.8B and $98.8B. What to do with that gap is the reader's call, and it depends entirely on the four assumptions in step 2.

Step 5 — the discount rate moves the answer more than anything else

Same filed inputs, same $250, only the discount rate changed:

An implied growth rate quoted without its discount rate is not a fact about the market. It is half of one.

Run it on any ticker

The calculator does the arithmetic above live. Open it with a ticker and free cash flow, net debt and share count arrive from EvidInvest's standardized statements — filed rows, with the form, period and accession number behind them from fiscal 2009 on — while every assumption stays yours to change. Enter a share price and the implied Stage 1 growth updates as you type.

The exact figures on this page were worked by hand from the filing so they can be checked line by line; the calculator seeds net debt from cash and equivalents alone, so its net-debt row will differ from the marketable-securities figure used above. Change it to match if you want to reproduce the numbers here.

The same solve is available to an assistant: get_reverse_dcf and get_implied_assumptions on the EvidInvest MCP server. Free to start, from $10, no subscription.

Questions

What is a reverse DCF?

A reverse discounted cash flow runs the ordinary DCF backwards. Instead of choosing a growth rate and reading off a value per share, you take the share price as given and solve for the growth rate that makes the model produce exactly that price. The output is an assumption, not a valuation.

What does a reverse DCF actually tell you?

It tells you what the market is already assuming about future cash flows, expressed as one number you can compare with what the company has filed. That turns the question from "is this the right price" into "is this the right expectation", which is a question the filings can speak to.

What is the reverse DCF formula?

Start from the DCF identity: enterprise value equals the sum of each year’s free cash flow discounted at the required return, plus a terminal value of FCF in the final year times one plus terminal growth, divided by the discount rate minus terminal growth, itself discounted back. Equity value is enterprise value minus net debt, and value per share is equity value divided by diluted shares. A reverse DCF fixes value per share at the market price and every input except Stage 1 growth, then solves for that growth rate. Because value per share rises monotonically with Stage 1 growth whenever the discount rate exceeds terminal growth and free cash flow is positive, a bisection search converges on a single answer.

Which numbers should come from the filings and which from you?

Free cash flow, net debt and the share count are historical facts and should be taken from the latest annual report — EvidInvest seeds them from the filed statements, with the form, period and accession number on the row. Growth, the discount rate, the fade and terminal growth are judgments and stay yours.

Why does the implied growth rate change when I change the discount rate?

Because they push in opposite directions. A higher discount rate lowers the present value of every future cash flow, so more growth is needed to reach the same price. In the Apple example, moving the discount rate from 7.5% to 10% moves the implied Stage 1 growth from about 15.5% a year to about 26.9% a year on the same filed cash flows. Always state the discount rate alongside any implied growth figure; on its own it means very little.

Does a high implied growth rate mean a stock is overpriced?

No. It means the price embeds that rate of growth under the assumptions you entered. Whether that rate is reachable is a judgment about the business, and it depends on the discount rate, the fade profile and the terminal rate you chose. EvidInvest shows the arithmetic and the filed history; it does not issue a verdict.

Can I run a reverse DCF from an AI assistant?

Yes. The EvidInvest MCP server exposes get_reverse_dcf and get_implied_assumptions, so Claude, ChatGPT, Cursor or your own script can solve for the implied growth rate on any covered ticker and get the filed inputs back with it. Free to start, from $10, no subscription.