How to Check a DCF Model in Excel

A DCF is only as good as the chain from revenue drivers to enterprise value. The math is simple, but a single hardcoded growth rate or a discount factor off by one period can swing the valuation. Here is a practical order for checking one in Excel.

Check the free cash flow build first

Start at the unlevered free cash flow line and work down to its drivers. FCF should trace back to revenue, margins, taxes, capex, and the change in working capital, with nothing typed in by hand along the way.

Select the FCF cell for the first forecast year and trace its precedents. Each input should be a formula or a clearly labeled assumption, not a plug.

Verify the discount rate and period count

Confirm WACC is built from its components rather than hardcoded, and that the formula references your live cost of equity and cost of debt cells.

The most common DCF error is the discount period. Check whether you are using full-year or mid-year convention and that the exponent on each year's discount factor increments correctly.

1. Find the cell holding WACC and trace it back to cost of equity, cost of debt, and the capital weights.
2. Inspect the first discount factor and confirm the period number is 1 (or 0.5 for mid-year).
3. Drag-check the exponent across the forecast row so each year increments by exactly one.
4. Recompute one discount factor by hand and compare it to the cell.

Stress-test the terminal value

Terminal value usually drives most of the valuation, so it deserves the closest look. For a Gordon growth terminal value, confirm the perpetuity growth rate is below your discount rate and references a single assumption cell.

For an exit-multiple terminal value, confirm the multiple applies to the correct final-year metric and that the terminal value itself is discounted back the right number of periods.

Trace enterprise value back to its parts

Sum of discounted FCF plus discounted terminal value should equal enterprise value with no rounding plug. Trace the EV cell and confirm both pieces are present and nothing else has crept into the sum.

ModelMint's Formula Trace makes this fast: select enterprise value, then step through precedents one layer at a time with the arrow keys. You confirm the bridge from EV to equity value, net debt, and per-share output without losing your place across tabs.

Sanity-check the equity bridge and output

From enterprise value, subtract net debt and add non-operating assets to reach equity value, then divide by shares to get the per-share figure. Each step should reference a labeled balance-sheet input.

Run a quick implied-multiple check: divide EV by the current-year metric and confirm it lands in a believable range. A clean DCF that implies a wildly off multiple usually hides a units or sign error upstream.