Valuation methodology
The valuation endpoint returns our discounted cash flow (DCF) model. It uses only the company's own SEC filings: no analyst forecasts and no market data. The response reports methodology_version, which changes whenever the method does.
Steps (version 1)
- History. The free cash flow and revenue of the last fiscal years (up to six).
- Base. The latest fiscal year's revenue times the median free cash flow margin of the last five years, which smooths one-off years.
- Growth. The revenue CAGR of the last five years, limited to between -5% and +15% a year. Years 1 to 5 grow at this rate; in years 6 to 10 the rate fades in equal steps to the perpetual growth rate of 2.5%.
- Discounting. Each projected year is discounted at the required return of 8.5%.
- Terminal value. The year-10 cash flow grows at 2.5% a year forever (Gordon growth), is divided by required return minus growth, and is discounted back like year 10.
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Fair value. Present value of the 10 years plus the terminal value, minus net debt (
total_debtminuscash_and_equivalents, each from the newest period that reports it; a missing value is never treated as zero), divided by the latest diluted share count (basic when diluted is not reported).
The assumptions object reports the required return, perpetual growth and the first-stage growth, free_cash_flow_projection has each projected year with its discount factor and present value, and inputs has the balance sheet date and values used.
When there is no valuation
A free cash flow model does not fit every company. The response is still 200, with meaningful: false and a reason:
| Code | Why |
|---|---|
financial_company |
Banks, insurers, brokers and real estate companies (SIC 6000 to 6799): free cash flow says little about their value |
no_industry_code |
We do not know the SEC industry code, so we cannot tell whether the model fits |
insufficient_history |
Fewer than three fiscal years of data, or free cash flow that is not positive enough to project |
no_share_count |
The latest share count is not available |
missing_balance_sheet |
No period reports total debt, or none reports cash |
not_calculable |
The result was not a finite number |
Limits of the model
It extrapolates the past. It does not know about acquisitions, new products, or changing margins, and a single discount rate for every company is a simplification. Treat the result as one input, not as advice. The data is provided as is and is not investment advice.