Build a DCF Model for Arm Holdings

Value a real semiconductor company using discounted cash flow analysis.

Introduction

30 Second Summary

Every time you see a stock price, someone is making a bet on what a company is worth today based on the cash it will generate in the future. The question is: how do they arrive at that number?

In this project, you will build a Discounted Cash Flow (DCF) valuation model for Arm Holdings in Google Sheets. You will pull real financial data, calculate a discount rate, and produce an implied share price you can compare against the market.

What You'll Build

A complete 5-tab DCF model that takes real financial data for Arm Holdings (ticker: ARM), calculates a Weighted Average Cost of Capital using academic-grade sector data, and derives an implied share price from projected free cash flows.

By the end of this project, you'll have:

Projected free cash flows for Arm Holdings over a 5-year forecast period, driven by editable assumptions.
A WACC calculation grounded in real sector data from Professor Damodaran's NYU dataset.
An implied equity value per share with a clear enterprise-to-equity bridge you can compare against ARM's market price.
Secret Mission: Build a two-variable sensitivity table mapping implied share price across different WACC and terminal growth rate assumptions.

Are there any prerequisites?

None. You just need a Google account with access to Google Sheets. This guide walks you through everything from data gathering to the final valuation output.

Set Up Your Spreadsheet and Gather Data

Every DCF model starts with real data. Before you can project future cash flows or calculate a discount rate, you need a clean workspace and the raw financial numbers that will drive every formula in your model.

In this step, you will create your spreadsheet structure in Google Sheets, pull Arm Holdings' actual financial results from Yahoo Finance, and record the academic-grade inputs you will need for your WACC calculation.

In this step, get ready to:

Create your DCF model spreadsheet with four named tabs.
Gather ARM's FY2026 financial data from Yahoo Finance.
Record WACC reference inputs from Damodaran Online.

Create your spreadsheet and tab structure

A professional DCF model separates its logic into distinct tabs so that assumptions, calculations, and outputs never get tangled together. You will create four tabs that mirror how investment banking analysts structure their models.

Open Google Sheets by navigating to sheets.google.com in your browser.
Click Blank spreadsheet to create a new file.
Click the spreadsheet title in the top-left corner (it will say "Untitled spreadsheet") and rename it to ARM Holdings DCF Model.
Right-click the default tab at the bottom (named "Sheet1") and select Rename. Type Assumptions and press Enter.
Click the + icon at the bottom-left of the tab bar to add a new tab. Rename it to FCF Projections.
Add another new tab and rename it to WACC.
Add one more tab and rename it to DCF.

You should now see four tabs at the bottom of your spreadsheet: Assumptions, FCF Projections, WACC, and DCF.

Why four separate tabs?

Separating assumptions from calculations makes your model auditable. An interviewer (or your future self) can trace any output back to a single editable input without hunting through tangled formulas.

Don't see the tab bar?

If your tab bar is hidden, click View in the top menu and make sure Show sheet tabs is checked.

help me find the tab bar in Google Sheets

Gather ARM's historical financial data from Yahoo Finance

You need Arm Holdings' most recent annual financial data to serve as the base year for your projections. All figures come from FY2026 (the fiscal year ending March 31, 2026).

Open a new browser tab and navigate to finance.yahoo.com.
Type ARM into the search bar and select Arm Holdings plc (ARM) from the results.

You are now on ARM's summary page. From here you will visit three sections: Income Statement, Cash Flow, and Balance Sheet.

Click Financials in the navigation menu below the stock chart.
Make sure you are viewing the Annual view (not quarterly). The default tab shown is the Income Statement.
Find the column for the fiscal year ending 3/31/2026 and note down Total Revenue ($4,920M) and Operating Income ($908M).
Scroll down on the same page and note Reconciled Depreciation ($249M). This is the D&A figure you will use.
Click the Cash Flow tab at the top of the financials section.
Note down Operating Cash Flow ($1,524M), Capital Expenditure ($575M), and Free Cash Flow ($949M) for the year ending 3/31/2026.
Also note the End Cash Position ($2,751M). You will need this later to bridge from enterprise value to equity value.
Click the Balance Sheet tab at the top of the financials section.
Note down Total Debt ($457M), Total Equity ($8,286M), and Shares Outstanding (1,064M) for the period ending 3/31/2026.

What is D&A?

D&A stands for Depreciation and Amortization. It is a non-cash expense that reduces reported operating income but does not represent actual money leaving the company. You add it back when calculating Free Cash Flow because it does not cost the business real cash.

Now enter all of this data into your Assumptions tab.

Switch back to your Google Sheets spreadsheet and click the Assumptions tab.
In cell A1, type ARM Holdings DCF Model - Assumptions and bold it.
In cell A3, type ARM FY2026 Financial Data as a section header. Bold this cell.
Starting in row 4, create labels in column A and values in column B as shown in this table:

A4: Revenue ($M) | B4: 4920
A5: Operating Income ($M) | B5: 908
A6: Depreciation & Amortization ($M) | B6: 249
A7: Operating Cash Flow ($M) | B7: 1524
A8: Capital Expenditure ($M) | B8: 575
A9: Free Cash Flow ($M) | B9: 949
A10: Total Debt ($M) | B10: 457
A11: Total Equity ($M) | B11: 8286
A12: Cash ($M) | B12: 2751
A13: Shares Outstanding (M) | B13: 1064

Resize column A for readability

Double-click the border between column A and column B headers to auto-fit the width of column A to your longest label.

Can't find the right column on Yahoo Finance?

Yahoo Finance shows multiple years side by side. Make sure you are reading the column headed 3/31/2026. If you only see trailing twelve months (TTM), click the Annual toggle at the top of the table.

help me find ARM's annual financial data on Yahoo Finance

Record key reference data for WACC inputs

The Weighted Average Cost of Capital is the discount rate you will use to bring future cash flows back to today's value. Its inputs come from market data and academic research, not from the company's financial statements.

Professor Aswath Damodaran at NYU Stern maintains free datasets that investment banking analysts and equity researchers use as their standard source for sector betas and cost of capital. You will pull your WACC inputs from his data.

The current US 10-year Treasury yield is approximately 4.45%. This is your risk-free rate. Record this value.
Open a new browser tab and navigate to Damodaran's betas page:

https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/Betas.html

Scroll down the table and find the row labelled Semiconductor. Note the unlevered beta value of 1.49.
Now navigate to Damodaran's cost of capital page:

https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/wacc.html

Find the Semiconductor row again. Note the following values: Cost of Debt is 5.29% and D/(D+E) is 2.53%.
Calculate the implied Equity Risk Premium. The table shows the semiconductor sector cost of equity is 10.72%. With a risk-free rate of 4.45% and a levered beta of 1.52, the implied ERP is approximately 4.13%. Record this value.

What is a beta?

Beta measures how much a stock moves relative to the overall market. A beta of 1.49 means semiconductor stocks are about 49% more volatile than the market average. You use beta in the CAPM formula to estimate how much return investors demand for holding a risky stock.

The unlevered beta strips out the effect of debt, giving you a pure measure of business risk. You will re-lever it for ARM's specific capital structure in Step 3.

Now add these WACC inputs to your Assumptions tab.

Switch back to your spreadsheet and click the Assumptions tab.
In cell A15, type WACC Inputs as a section header. Bold this cell.
Enter the following labels and values starting in row 16:

A16: Risk-Free Rate | B16: 4.45%
A17: Unlevered Beta | B17: 1.49
A18: Equity Risk Premium | B18: 4.13%
A19: Cost of Debt | B19: 5.29%
A20: D/(D+E) | B20: 2.53%
A21: Tax Rate | B21: 22%

Why use Damodaran's data?

Professor Damodaran's datasets are the industry-standard free source for sector betas and cost of capital inputs. Investment banking analysts and equity researchers reference these same numbers. Using this source teaches you where real practitioners get their data.

Having trouble finding the Semiconductor row?

Damodaran's tables are sorted alphabetically. Press Cmd+F (macOS) or Ctrl+F (Windows) and search for "Semiconductor" to jump directly to the row.

help me find the semiconductor beta on Damodaran's page

Your data foundation is in place. In the next step, you will use these numbers to project Arm Holdings' free cash flows five years into the future.

Project Free Cash Flows

Your Assumptions tab now holds Arm Holdings' real financial data from the most recent fiscal year. A DCF model looks forward, not backward. The core question is: how much cash will ARM generate over the next five years?

In this step, you will project ARM's Unlevered Free Cash Flows for a five-year forecast period. You will set editable growth and margin assumptions, then build a formula-driven projections tab that automatically recalculates when you change any input.

In this step, get ready to:

Set revenue growth and margin assumptions on the Assumptions tab.
Build the FCF Projections tab with formulas linked to your assumptions.
Verify that projected values fall within reasonable ranges.

Set growth and margin assumptions on your Assumptions tab

Every number in your projections needs to trace back to a single editable cell. This is the golden rule of financial modeling: never hard-code a value inside a formula.

By keeping all assumptions in one place, you can change any input and watch the entire model update instantly. This also makes your model auditable.

Switch to your Assumptions tab.
Below your WACC Inputs section, type the header Projection Assumptions in column A.
Leave a blank row after the header for visual spacing.

Now enter the revenue growth rates. ARM has been growing at over 20% annually, but analyst consensus expects growth to decelerate toward ~16% average over the next few years.

In column A, type Revenue Growth Rate as your row label.
In the cells to the right (one per year), enter the following five values: 18% for Year 1, 17% for Year 2, 16% for Year 3, 15% for Year 4, and 14% for Year 5.
Label the columns above these values as Y1, Y2, Y3, Y4, Y5 so you can identify each year.

Why does growth decline each year?

High-growth companies like ARM cannot sustain 20%+ growth indefinitely. As the revenue base gets larger, it becomes harder to maintain the same percentage growth.

Declining growth from 18% to 14% reflects this reality while still keeping ARM's average around the ~16% analyst consensus.

On the next row, type EBIT Margin as the label.
Enter the following five values: 18.5% for Year 1, 19% for Year 2, 20% for Year 3, 21% for Year 4, and 22% for Year 5.

Why does EBIT margin expand?

ARM's current operating margin is 18.5% ($908M / $4,920M). As a software and IP licensing business, ARM has high fixed costs but very low variable costs.

Each additional dollar of revenue requires very little extra spending to deliver. This operating leverage means margins naturally expand as revenue grows.

On the next row, type Tax Rate and enter 22% in the first year column. This value stays constant across all years.
On the next row, type D&A % of Revenue and enter 5%. This is based on ARM's current D&A of $249M divided by $4,920M revenue.
On the next row, type CapEx % of Revenue and enter 12%. This is based on ARM's current CapEx of $575M divided by $4,920M revenue.
On the next row, type NWC % of Incremental Revenue and enter 1%. This represents the portion of new revenue that gets tied up in working capital.

Format percentages properly

Select your percentage cells, then click Format > Number > Percent. This ensures Google Sheets treats 18% as 0.18 in formulas, not the number 18.

Build the FCF Projections tab

With your assumptions in place, you can now build the projection engine. Every formula in this tab will pull from the Assumptions tab, so changing a single growth rate automatically ripples through the entire model.

Switch to your FCF Projections tab.
In cell A1, type FCF Projections as a title.
In row 3, set up column headers. Type Metric in cell A3, then Year 1 through Year 5 in cells B3 through F3.

Now set up the row labels. Each row represents one line item in the free cash flow calculation.

Starting in cell A4, enter these labels down column A, one per row:

Time to write the formulas. You will build Year 1 first, then copy the formulas across to Years 2 through 5.

In the Revenue cell for Year 1 (B4), enter a formula that multiplies base revenue by (1 + Year 1 growth rate), both referencing your Assumptions tab:

=Assumptions!B2 * (1 + Assumptions!B8)

What does this formula do?

This takes ARM's base revenue ($4,920M from cell B2 on Assumptions) and grows it by the Year 1 growth rate (18% from cell B8 on Assumptions). Your cell references will differ depending on where you placed each value.

The key principle: the formula contains no raw numbers. Every input traces back to the Assumptions tab.

In the Revenue Growth % cell for Year 1 (B5), reference the growth rate directly from Assumptions. This is purely for display so anyone reading the model can see what rate was used.
In the EBIT cell for Year 1 (B6), enter a formula that multiplies Revenue by the EBIT Margin assumption:

=B4 * Assumptions!B10

What is EBIT?

EBIT stands for Earnings Before Interest and Taxes. It represents ARM's operating profit before financing costs and tax payments are deducted.

You use EBIT (not net income) in a DCF because you want to value the entire business regardless of how it is financed. Interest payments are already captured in the WACC discount rate.

In the Taxes cell (B7), multiply EBIT by the Tax Rate assumption:

=B6 * Assumptions!B11

In the NOPAT cell (B8), subtract Taxes from EBIT:

=B6 - B7

What is NOPAT?

NOPAT is Net Operating Profit After Tax. It is the profit available to all capital providers (both debt and equity holders) after the government takes its share.

This is your starting point for free cash flow. From here, you add back non-cash charges and subtract real cash outflows.

In the D&A cell (B9), multiply Revenue by the D&A % of Revenue assumption:

=B4 * Assumptions!B12

In the CapEx cell (B10), multiply Revenue by the CapEx % of Revenue assumption:

=B4 * Assumptions!B13

In the Change in NWC cell (B11), multiply the incremental revenue (this year's revenue minus last year's base revenue) by the NWC % assumption:

=(B4 - Assumptions!B2) * Assumptions!B14

Why subtract change in NWC?

When a company grows, some cash gets locked up in things like unpaid invoices and inventory. This is called Net Working Capital.

The change in NWC represents the extra cash consumed as revenue increases. You only apply it to the incremental revenue (this year minus last year), not the total.

In the Unlevered Free Cash Flow cell (B12), combine all the components:

=B8 + B9 - B10 - B11

What does this formula do?

This is the free cash flow formula: start with NOPAT, add back D&A (a non-cash expense), subtract CapEx (real cash spent on assets), and subtract the increase in working capital (cash tied up in operations).

The result is the cash the business generates that is available to all investors, before any debt payments or dividends.

Now extend the formulas across to Years 2 through 5.

For Year 2 Revenue, multiply Year 1 Revenue by (1 + Year 2 growth rate). The key difference from Year 1 is that you reference the previous year's revenue in this same tab instead of the base revenue from Assumptions.
For Year 2 Change in NWC, calculate incremental revenue as Year 2 Revenue minus Year 1 Revenue (both in this tab), multiplied by the NWC % assumption.
Copy the EBIT, Taxes, NOPAT, D&A, CapEx, and UFCF formulas from Year 1 and adjust the growth rate and margin references to point to each year's specific assumption cell.
Repeat for Years 3, 4, and 5.

Use absolute references for fixed assumptions

For assumptions that stay constant across all years (Tax Rate, D&A %, CapEx %, NWC %), use the dollar sign to lock the cell reference (e.g., Assumptions!$B$11). This way you can copy the formula across columns without the reference shifting.

For year-specific assumptions (growth rate, EBIT margin), let the column reference shift naturally as you copy across.

Seeing zeros or errors in your formulas?

Check that your Assumptions tab cell references point to the correct cells. Click on any formula cell and look at the coloured range highlights to verify.

If you see very large or very small numbers, confirm your percentages are formatted as percentages (0.18) not whole numbers (18). A value of 18 instead of 18% will make revenue 19x too large.

Help me debug my FCF Projections formulas in Google Sheets.

Verify your projections look reasonable

A sanity check is essential before building on top of these projections. If the base is wrong, every downstream calculation will be wrong too.

Check your Year 1 UFCF. It should be approximately $900M to $1,100M. ARM's actual FY2026 free cash flow was $949M, so your Year 1 projection should be in the same ballpark.
Check your Year 5 Revenue. It should be approximately $9B to $10B. This reflects the ~16% average growth compounding over five years from a $4,920M base.
Verify that UFCF grows each year. Since margins are expanding while D&A and CapEx remain proportional to revenue, free cash flow should increase steadily.

What if my numbers are slightly different?

Small differences in cell placement will produce slightly different results depending on how you structured your Assumptions tab. The important thing is that your Year 1 UFCF lands between $900M and $1,100M and Year 5 Revenue lands between $9B and $10B.

If numbers are wildly outside these ranges, double-check that your percentages are formatted correctly and that cross-sheet references point to the right cells.

Year 5 Revenue is way too high or too low?

If Year 5 Revenue is above $15B, your growth rates are likely entered as whole numbers (18) instead of percentages (0.18 or 18%). Select the cells and apply percentage formatting.

If Year 5 Revenue is below $5B, check that each year's revenue formula references the previous year's revenue, not the original base. Year 2 should grow from Year 1, not from $4,920M again.

Help me check why my revenue projections look wrong.

Your five-year cash flow projections are locked in. Next, you will calculate the discount rate that determines what those future cash flows are worth in today's dollars.

Calculate WACC

Your FCF Projections tab now has five years of projected cash flows, all driven by the assumptions you set up earlier.

Those cash flows are worth less today than they will be in the future. The Weighted Average Cost of Capital (WACC) is the discount rate that captures this time-value-of-money principle. In this step, you will calculate WACC from scratch using the Capital Asset Pricing Model (CAPM) and real sector data from Professor Damodaran's academic dataset.

In this step, get ready to:

Calculate the Cost of Equity using CAPM with a re-levered beta.
Calculate the full WACC using capital structure weights.
Format the WACC tab so every input is labelled and auditable.

Build the Cost of Equity calculation using CAPM

CAPM says that the return investors demand on a stock equals the risk-free rate plus a premium for market risk. That premium is scaled by beta, which measures how volatile the stock is relative to the market.

You already recorded the raw inputs on your Assumptions tab. Now you will link them into the WACC tab and build the formulas that produce a Cost of Equity.

Switch to the WACC tab at the bottom of your spreadsheet.
In cell A1, type Risk-Free Rate.
In cell B1, enter a formula that links to the Risk-Free Rate cell on your Assumptions tab:

=Assumptions!B12

Why link instead of typing the value directly?

Linking to the Assumptions tab means you only ever change an input in one place. If you decide the risk-free rate should be 4.5% instead of 4.45%, updating the Assumptions tab automatically flows through your entire model.

Continue building rows for each CAPM input. Set up the following labels in column A and formulas in column B:

A1: Risk-Free Rate          B1: =Assumptions!B12    (should show 4.45%)
A2: Unlevered Beta           B2: =Assumptions!B13    (should show 1.49)
A3: Tax Rate                 B3: =Assumptions!B17    (should show 22%)
A4: Total Debt               B4: =Assumptions!B7     (should show 457)
A5: Total Equity             B5: =Assumptions!B8     (should show 8286)
A6: Debt/Equity              B6: =B4/B5              (should show ~5.5%)
A7: Levered Beta             B7: =B2*(1+(1-B3)*(B4/B5))
A8: Equity Risk Premium      B8: =Assumptions!B14    (should show 4.13%)

What does the Levered Beta formula do?

Damodaran provides an unlevered beta (1.49), which strips out the effect of debt. The re-levering formula adds back the financial risk specific to ARM's capital structure.

Because ARM carries very little debt (Debt/Equity of only ~5.5%), the levered beta barely budges. It should read approximately 1.56.

Now calculate the Cost of Equity. In cell A9, type Cost of Equity. In cell B9, enter the CAPM formula:

=B1+B7*B8

What does this formula do?

This is the CAPM equation: Cost of Equity = Risk-Free Rate + Levered Beta x Equity Risk Premium. It captures the return equity investors demand for holding ARM stock. Your result should be approximately 10.9%.

Verify that cell B7 (Levered Beta) shows a value close to 1.56 and cell B9 (Cost of Equity) shows a value close to 10.9%.

Seeing a number like 0.109 instead of 10.9%?

If your Assumptions tab stores the risk-free rate as 0.0445 (decimal) rather than 4.45% (percentage-formatted), the math still works. The important thing is consistency. Either store all rates as decimals or all as percentages. Format the cell as a percentage by selecting it, then clicking Format > Number > Percent.

If your Cost of Equity is wildly different from 10.9%, double-check that B6 shows the Debt/Equity as a decimal (~0.055), not as a percentage (5.5%) in the formula context.

Still stuck? Help me troubleshoot my Cost of Equity calculation in Google Sheets

Calculate the Weighted Average Cost of Capital

WACC blends the cost of equity and the cost of debt, weighted by how much of each a company uses to finance itself. Because interest payments on debt are tax-deductible, you apply debt on an after-tax basis.

Continue below your Cost of Equity row. Add the following rows for the debt side and capital weights:

A10: Cost of Debt             B10: =Assumptions!B15   (should show 5.29%)
A11: After-tax Cost of Debt   B11: =B10*(1-B3)        (should show ~4.13%)
A12: Weight of Equity         B12: =B5/(B4+B5)        (should show ~94.8%)
A13: Weight of Debt           B13: =B4/(B4+B5)        (should show ~5.2%)

What do these formulas calculate?

The After-tax Cost of Debt multiplies the pre-tax rate by (1 - Tax Rate) because interest payments reduce taxable income. At a 5.29% cost of debt and 22% tax rate, the effective cost is about 4.13%.

The weights reflect ARM's capital structure. With $8,286M in equity and only $457M in debt, equity makes up about 94.8% of total financing. This means your WACC will be dominated by the Cost of Equity.

Now calculate the final WACC. In cell A14, type WACC. In cell B14, enter the WACC formula:

=(B12*B9)+(B13*B11)

What does this formula do?

This is the WACC equation: (Weight of Equity x Cost of Equity) + (Weight of Debt x After-tax Cost of Debt). It produces a single blended discount rate that reflects the return all capital providers (shareholders and lenders) expect from ARM.

Check that cell B14 displays a value in the range of 10.5% to 11%. This is your discount rate for the entire DCF model.

WACC outside the 10-11% range?

If your WACC is below 8% or above 14%, something is off. Check these common causes:

The weights in B12 and B13 should sum to 100%. If they do not, the formulas are dividing by the wrong cells.
Make sure your Debt and Equity values in B4 and B5 are in the same units (both in millions). Mixing $457M with $8,286,000 will break the ratio.
Confirm your Cost of Equity in B9 is around 10.9%. If it is wildly different, revisit substep 1.

Need more help? Help me debug my WACC calculation

Format the tab for auditability

In investment banking, every analyst who touches your model needs to trace how you arrived at each number. A clean layout with one input per row makes this instant.

Widen column A so all your labels are fully visible. Double-click the border between column A and column B headers to auto-fit.
Select cell A14 (your WACC label) and cell B14 (the WACC value). Apply bold formatting by pressing Cmd+B (macOS) or Ctrl+B (Windows).
Format all percentage cells (B1, B3, B6, B8, B9, B10, B11, B12, B13, B14) as percentages. Select them, then click Format > Number > Percent.
Format the monetary cells (B4, B5) as numbers with no decimal places. Select them, then click Format > Number > Number and set decimal places to 0.

Your WACC tab should now have 14 rows. Each row has a label in column A and a value or formula in column B. The bold WACC at the bottom is the single number your DCF tab will reference to discount future cash flows.

Why does the WACC matter so much?

A small change in WACC (even 0.5%) can swing your implied share price by tens of dollars. This is exactly why investment banks present valuation as a range rather than a single number. You will see this effect first-hand in the next step when you discount your projected cash flows.

✔️ Awesome, I've got everything!

Great. Your WACC tab is complete and auto-saves in Google Sheets.

ⓧ I'd like to double check the full layout

Here is the full WACC tab structure for comparison:

     A                         B
1    Risk-Free Rate            =Assumptions!B12        (4.45%)
2    Unlevered Beta            =Assumptions!B13        (1.49)
3    Tax Rate                  =Assumptions!B17        (22%)
4    Total Debt                =Assumptions!B7         (457)
5    Total Equity              =Assumptions!B8         (8286)
6    Debt/Equity               =B4/B5                  (~5.5%)
7    Levered Beta              =B2*(1+(1-B3)*(B4/B5))  (~1.56)
8    Equity Risk Premium       =Assumptions!B14        (4.13%)
9    Cost of Equity            =B1+B7*B8               (~10.9%)
10   Cost of Debt              =Assumptions!B15        (5.29%)
11   After-tax Cost of Debt    =B10*(1-B3)             (~4.13%)
12   Weight of Equity          =B5/(B4+B5)             (~94.8%)
13   Weight of Debt            =B4/(B4+B5)             (~5.2%)
14   WACC (bold)               =(B12*B9)+(B13*B11)     (~10.5-11%)

The cell references to Assumptions (like =Assumptions!B12) depend on exactly where you placed each value on your Assumptions tab. Adjust the row numbers to match your layout.

Your discount rate is locked in. Next up, you will use this WACC to discount all five years of projected free cash flows, add a terminal value, and bridge from enterprise value to an implied share price.

Discount Cash Flows and Derive Implied Share Price

You have projected Arm's free cash flows for five years and calculated the discount rate that reflects the risk of owning this business. Now it is time to bring everything together into a single number: what is one share of ARM actually worth today?

In this step, you will discount each year's cash flow back to present value, estimate what the business is worth beyond Year 5 using a Terminal Value, and then bridge from total company value down to a per-share price you can compare against the stock market.

In this step, get ready to:

Calculate the present value of each year's projected free cash flow using your WACC as the discount rate.
Calculate Terminal Value using the Gordon Growth Model and discount it to present.
Bridge from Enterprise Value to an implied share price and compare it to ARM's market price.

Calculate the present value of each year's projected free cash flow

A dollar received five years from now is worth less than a dollar today because of risk and the time value of money. To account for this, you divide each future cash flow by a discount factor that grows larger each year, shrinking distant cash flows more aggressively.

Switch to your DCF tab in Google Sheets.
In cell A1, type a section header: Present Value of Projected Free Cash Flows.
In row 3, create column headers in cells B3 through F3: Year 1, Year 2, Year 3, Year 4, Year 5.
In cell A4, type the row label UFCF.
In cell B4, link Year 1's UFCF from your FCF Projections tab using a cross-sheet reference to the UFCF row on that tab.
Repeat for cells C4 through F4, linking Year 2 through Year 5 UFCF values.

Now add the discount factor and present value rows. Enter these formulas to calculate the discounted value of each year's cash flow:

In cell A5, type the label Discount Factor.
In cell B5, enter the Year 1 discount factor formula by referencing your WACC cell on the WACC tab:

=1/(1+WACC!B14)^1

In cell C5, enter the Year 2 discount factor. The only change is the exponent:

=1/(1+WACC!B14)^2

Continue the pattern for cells D5, E5, and F5, raising the exponent to 3, 4, and 5 respectively.
In cell A6, type the label PV of FCF.
In cell B6, multiply the UFCF by the discount factor:

=B4*B5

Copy this formula across to C6 through F6 for Years 2 through 5.
In cell A8, type Sum of PV of FCFs and in cell B8, enter:

=SUM(B6:F6)

What do the discount factors do?

Each discount factor is a fraction less than 1 that shrinks future cash flows to reflect today's value. Year 1's factor of 1/(1+WACC)^1 is roughly 0.90, meaning a dollar next year is worth about 90 cents today.

By Year 5, the factor drops to around 0.59. The further out a cash flow is, the less it contributes to today's value. This is the core mechanic of Discounted Cash Flow analysis.

Check your Sum of PV of FCFs. It should be in the range of $3,000M to $4,000M.

Seeing a very small or very large number?

Make sure your WACC reference points to the correct cell on the WACC tab. If your WACC is showing as 10.5 instead of 0.105, the cell is formatted as a whole number rather than a percentage. Adjust the formula to divide by 100 or reformat the source cell.

Also confirm your UFCF links are pulling the correct row from the FCF Projections tab. Each cell should show a value in the hundreds of millions.

Help me troubleshoot my discount factor formulas in the DCF tab.

Calculate Terminal Value using the Gordon Growth Model

Your five-year projection only captures a fraction of ARM's total value. The company does not stop generating cash after Year 5. Terminal Value estimates the worth of all cash flows beyond your projection period, assuming the business grows at a stable rate forever.

Switch to the Assumptions tab.
Add a new row labelled Terminal Growth Rate and enter 3.5% as the value.

Why 3.5% for terminal growth?

The terminal growth rate represents how fast the company grows in perpetuity after your projection period. It must stay below long-run GDP growth (typically 2-3% for developed economies). Using 3.5% is slightly aggressive but reflects ARM's position in a structurally growing semiconductor market.

If this rate exceeds your WACC, the formula breaks (negative denominator). Keeping it well below WACC ensures mathematical validity and economic realism.

Switch back to the DCF tab.
In cell A10, type the section header: Terminal Value.
In cell A11, type Terminal Growth Rate and in cell B11, link to the 3.5% value on your Assumptions tab.
In cell A12, type Terminal Value and in cell B12, enter the Gordon Growth Model formula:

=F4*(1+B11)/(WACC!B14-B11)

What does this formula do?

The Gordon Growth Model calculates the value of an infinite stream of growing cash flows. F4 is your Year 5 UFCF. Multiplying by (1 + terminal growth rate) pushes it one year forward to Year 6. Dividing by (WACC - terminal growth rate) converts that single future payment into the present value of an infinite growing annuity.

In cell A13, type PV of Terminal Value and in cell B13, discount it back to today:

=B12/(1+WACC!B14)^5

Check that your PV of Terminal Value is significantly larger than your Sum of PV of FCFs. It should represent roughly 70-80% of total value.

Why does Terminal Value dominate the result?

For high-growth companies like ARM, most of the value lies in the long-term future beyond your explicit projection. This is normal and expected. It also reveals an important truth about DCF models: they are primarily arguments about long-term growth assumptions, not precision instruments.

Terminal Value looks unreasonably large or shows an error?

If you see a #DIV/0! error, your terminal growth rate is equal to or greater than WACC. Confirm B11 shows 3.5% (not 35%). If Terminal Value exceeds $50 billion, check that your Year 5 UFCF in F4 is in millions (around $1,200-$1,500M), not in billions.

Help me fix my Terminal Value formula.

Bridge from Enterprise Value to implied share price

Enterprise Value represents what the entire business is worth to all capital providers (both debt holders and shareholders). To find what belongs to shareholders alone, you subtract debt and add back cash. Then you divide by the number of shares to get a per-share price.

In cell A15, type the section header: Valuation Bridge.
In cell A16, type Enterprise Value and in cell B16, enter:

=B8+B13

In cell A17, type Less: Total Debt and in cell B17, link to the Total Debt value on your Assumptions tab ($457M).
In cell A18, type Plus: Cash and in cell B18, link to the Cash value on your Assumptions tab ($2,751M).
In cell A19, type Equity Value and in cell B19, enter:

=B16-B17+B18

In cell A20, type Shares Outstanding (M) and in cell B20, link to the Shares Outstanding value on your Assumptions tab (1,064M).
In cell A21, type Implied Share Price and in cell B21, enter:

=B19/B20

Bold the Implied Share Price label and format cell B21 as currency (select the cell, click **Format**, then **Number**, then **Currency**).

What does the enterprise-to-equity bridge do?

Enterprise Value is the total value of the operating business. Debt holders have a prior claim on that value, so you subtract Total Debt ($457M). Cash sitting on the balance sheet is not part of operations but does belong to shareholders, so you add it back ($2,751M).

The result is Equity Value. Dividing by shares outstanding (1,064 million) gives you the price per share that your model implies ARM is worth today.

Your implied share price should fall somewhere between $100 and $500. The exact value depends on your assumptions.
Compare your implied price to ARM's current market price of approximately $439. Note whether your model suggests the stock is overvalued (your price is lower) or undervalued (your price is higher) at your current assumptions.

What if my price is very different from the market price?

This is completely normal and expected. A DCF output is only as good as its assumptions. The market price reflects the consensus view of thousands of analysts, each with their own growth and discount rate assumptions. Your model gives you a framework for asking: what growth rate would justify the current price?

Implied share price outside the $100-$500 range?

If your price is below $50, check that you added cash ($2,751M) rather than subtracting it. If it is above $1,000, confirm your Terminal Growth Rate is 3.5% (not 35%) and your WACC is in the 10-11% range.

Also verify that all values are in consistent units. If your UFCF is in millions, your debt, cash, and shares outstanding must also be in millions.

Help me troubleshoot my implied share price calculation.

✔️ Awesome, I've got everything!

Great. Double check you have a bold Implied Share Price cell formatted as currency. Your DCF tab should show the full chain from projected cash flows through to a single per-share value.

ⓧ I'd like to double check the full DCF tab

Here is the complete layout for your DCF tab. Cell references may vary depending on your exact layout, but the formula logic should match:

A1: Present Value of Projected Free Cash Flows (header)

A3: (blank)         B3: Year 1       C3: Year 2       D3: Year 3       E3: Year 4       F3: Year 5
A4: UFCF            B4: ='FCF Projections'!B9  (linked for each year across to F4)
A5: Discount Factor B5: =1/(1+WACC!B14)^1     C5: =1/(1+WACC!B14)^2  ... F5: =1/(1+WACC!B14)^5
A6: PV of FCF       B6: =B4*B5                C6: =C4*C5        ... F6: =F4*F5

A8: Sum of PV of FCFs    B8: =SUM(B6:F6)

A10: Terminal Value (header)
A11: Terminal Growth Rate B11: =Assumptions!XX (linked to 3.5% cell)
A12: Terminal Value       B12: =F4*(1+B11)/(WACC!B14-B11)
A13: PV of Terminal Value B13: =B12/(1+WACC!B14)^5

A15: Valuation Bridge (header)
A16: Enterprise Value          B16: =B8+B13
A17: Less: Total Debt          B17: =Assumptions!XX (linked to $457M cell)
A18: Plus: Cash                B18: =Assumptions!XX (linked to $2,751M cell)
A19: Equity Value              B19: =B16-B17+B18
A20: Shares Outstanding (M)    B20: =Assumptions!XX (linked to 1,064M cell)
A21: Implied Share Price       B21: =B19/B20  (bold, currency format)

Secret mission

Build a Sensitivity Table

Your model gives you a single implied share price. But how confident are you in your WACC and terminal growth assumptions? In this secret mission, you will build a two-variable sensitivity table that maps how your implied share price changes across a grid of discount rates and growth rates. This is the step that transforms your model from a student exercise into something you could present in an interview.

Clean Up Your Resources

This project runs entirely in Google Sheets using free web data sources, so there are no ongoing costs. Decide whether to keep your spreadsheet, or delete it entirely.

Resources you used:

Google Sheets spreadsheet ("ARM Holdings DCF Model") stored in your Google Drive.

Keep everything running

No action needed. Choose this if you want to refine your model further, update it with new quarterly data, or use it as a reference for building DCF models on other companies.

Your Google Sheet remains in your Google Drive at no cost.
You can access it anytime and continue editing.

Pause - I'll come back to this later

Since Google Sheets is free and cloud-hosted, there is nothing to pause. Your spreadsheet stays in Google Drive without consuming any paid resources.

No action required. Your model is safe and accessible whenever you return.

Delete - I don't want to use this again

Remove the spreadsheet from your Google Drive entirely.

Open Google Drive at drive.google.com.
Find the spreadsheet named "ARM Holdings DCF Model".
Right-click on the file and select Move to trash.
To permanently delete it, open Trash in the left sidebar, right-click the file, and select Delete forever.

That's a Wrap!

Nice work! You just built a professional DCF valuation model for Arm Holdings from scratch in Google Sheets, grounded in real financial data and academic-grade inputs.

You now have a portfolio-ready artifact you can reference on your CV and walk through in investment banking interviews.

You've learned how to:

Built a complete, multi-tab DCF valuation model from scratch using real financial data from Yahoo Finance and sector data from Damodaran's academic dataset.
Calculated WACC using the CAPM framework, re-levering a sector beta for ARM's capital structure and producing a defensible discount rate.
Derived an implied equity value per share through a proper enterprise-to-equity bridge, projecting 5 years of Unlevered Free Cash Flows and discounting them to present value.
Built a two-variable sensitivity table mapping implied share price across a grid of WACC and terminal growth rate assumptions (Secret Mission).

Ready to quiz yourself?