Reverse DCF
A valuation technique that solves the discounted-cash-flow equation BACKWARD: instead of estimating a growth rate and computing fair value, take the OBSERVED market price plus a discount rate, solve for the growth rate that justifies the price, then test whether that implied growth is plausible against the company's history, industry comps, and long-run nominal GDP. Single-stage form (from Gordon growth): g = (P x r - FCF0) / (P + FCF0). Aswath Damodaran calls this "what would I have to believe?" valuation. Most powerful for high-multiple growth stocks (where forward DCF requires too many assumptions to be objective) and for mature businesses near long-run nominal GDP growth (where the single-stage Gordon approximation is closest to right).
Lessons that use this term
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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