An ordinary discounted cash flow starts from a forecast — how fast revenue grows, how much of it becomes cash — and ends at a price. A reverse DCF runs the same model the other way round. The price is the one figure nobody has to guess, so it is held fixed, and the model is solved for the growth that makes it come out exactly at that price.
The result is not a valuation. It is a statement of what the market is already counting on: “at $182 this company has to grow its revenue about 10% a year for five years”. Whether that is cheap or dear is then a question you can answer with something you can actually check — what the company has grown in the past, and whether its future looks better or worse than that.
Every other input — margins, reinvestment, the discount rate, the terminal value — stays as the forward model has it. There is no closed form; the growth is found by trying rates until the model lands on the price. Because faster growth only adds value while each extra dollar of revenue brings in cash, the search is meaningful only for a business whose free cash flow is a positive share of its revenue.
A company reported $416bn of revenue last year and trades at $182. Holding its margins and discount rate where the forward model sets them, the model reaches $182 only if revenue grows about 10% a year for five years, to roughly $674bn.
Over the last five years the company grew 8.7% a year. The price therefore asks for a little more than its own record. At $146, twenty percent cheaper, the price would need about 7.6% — inside the record. At $219 it would need well over 12%.
Read the implied growth against the company’s own history, not against a rule of thumb. A price that needs growth well above anything the business has done is a bet on a better future than its past; a price that needs less than its record leaves room for disappointment.
In the app, the Reverse DCF chip on a company’s Intrinsic Value tab runs our Advanced DCF backwards on the same assumptions, shows the answer as a five-year average beside the company’s record, and lets you slide your own growth to see what the share is worth at that pace.
It is most useful where a forward forecast would be hardest to defend — a fast grower, a turnaround, a company the market prices on a story — because it replaces “what will growth be?” with the easier question “is this much growth plausible?”.
It is exactly as good as the assumptions it holds fixed. Change the margin or the discount rate and the implied growth moves with them, so the answer is “at these assumptions”, never a property of the share on its own. It also says nothing for a company whose cash flow is negative: there, faster growth makes the business worth less, and no growth rate matches the price.