We discount the terminal cash flows to today's value at a cost of equity of 6.4%. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 1.9%. The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. We do this to reflect that growth tends to slow more in the early years than it does in later years. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. To start off with, we need to estimate the next ten years of cash flows. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. See our latest analysis for Boeing Is Boeing Fairly Valued? If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. How far off is The Boeing Company ( NYSE:BA) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value.

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