Also called Normalized FCF, Normalised free cash flow
DCF base
The figure the projection actually starts from: a trend-fitted or median value across several years, so one distorted year cannot become a runaway base. It can sit far from the latest year.
Updated 2026-09-03
The DCF base is the figure the projection actually starts from. It is not last year's free cash flow. It is a normalized figure fitted across several years, so that one distorted year cannot set the trajectory for an entire valuation.
This matters more than it sounds, because everything downstream compounds off this one number. Get it 30 percent too low and every projected year is 30 percent too low, the terminal value is 30 percent too low, and so is the answer. A base-year error is not an error in one input. It scales the whole result.
How it is derived
- With three or more clean positive years, a log-linear trend is fitted through every point and read at the latest year. That is the current run-rate, and using every point means one bad year cannot swing it the way comparing the first year to the last would.
- For a growing company the result is capped at the latest year actually reported. Angie never projects from a base above cash the business genuinely earned.
- With a short history or any non-positive year it falls back to the median, and the row is marked low confidence, because there is no clean trend to fit.
There is one further branch and it exists because of a specific failure. Coca-Cola's cash flow series ran roughly $9.5B, $9.7B, $4.7B, $5.3B across a one-off tax deposit of about $6B, while revenue grew steadily throughout. A trend line fitted through that projects the deposit forward forever, and it produced a base near $4.8B against roughly $10B of normal cash generation. So when cash flow falls while revenue rises, the base is floored at the latest reported year and never above it.
See also
- Free cash flow — The cash left for investors after keeping the business running. This is the number a DCF actually values, taken from the most recent fiscal year.
- Growth rate — Year-one growth, faded toward the perpetual rate across the horizon. Left blank it comes from the company's own history, capped at the sector ceiling, and a genuine decline is kept rather than floored up.
- Discounted cash flow — Valuing a company by projecting the cash it will generate and discounting each year back to today. Everything Angie does is one long DCF.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
