Standard DCF modeling requires forecasting forward growth rates to compute an estimated fair value. A Reverse DCF reverses this mathematical process: it takes the current market price (CMP) as a given input and solves for the forward cash flow growth rate that the market price implicitly prices in.

The Reverse DCF Equation

By setting the DCF intrinsic value per share equal to the Current Market Price, the model solves for the annual growth rate $g$ required over the next 5 to 10 years:

$$\text{Current Market Price} = \sum_{t=1}^{n} \frac{\text{FCFF}_0 \times (1 + g)^t}{(1 + \text{WACC})^t} + \frac{\text{Terminal Value}}{(1 + \text{WACC})^n} - \text{Net Debt per Share}$$

Evaluating Implied Expectations

Reverse DCF provides a framework for analyzing market expectations:

• If a company's market price implies a 28% annual cash flow growth rate for the next decade, while the broader industry is expanding at 11%, the market is pricing in substantial market share gains and margin expansion.
• Conversely, if a mature business with steady cash generation has a market price implying only 3% forward growth, market expectations are comparatively modest.

Comparing the market-implied growth rate against historical revenue growth, addressable market size, and industry economics offers an objective lens on the assumptions embedded in current trading prices.