Stock Analysis on Net
Stock Analysis on Net

Synopsys Inc. (NASDAQ:SNPS)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Synopsys Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 14.69%
01 FCFF0 1,514,588
1 FCFF1 1,737,712 = 1,514,588 × (1 + 14.73%) 1,515,072
2 FCFF2 1,984,272 = 1,737,712 × (1 + 14.19%) 1,508,386
3 FCFF3 2,255,044 = 1,984,272 × (1 + 13.65%) 1,494,589
4 FCFF4 2,550,522 = 2,255,044 × (1 + 13.10%) 1,473,844
5 FCFF5 2,870,871 = 2,550,522 × (1 + 12.56%) 1,446,411
5 Terminal value (TV5) 151,366,186 = 2,870,871 × (1 + 12.56%) ÷ (14.69% – 12.56%) 76,261,769
Intrinsic value of Synopsys Inc. capital 83,700,072
Less: Debt (fair value) 18,078
Intrinsic value of Synopsys Inc. common stock 83,681,994
 
Intrinsic value of Synopsys Inc. common stock (per share) $548.58
Current share price $523.38

Based on: 10-K (reporting date: 2023-10-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Synopsys Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 79,838,316 1.00 14.70%
Debt (fair value) 18,078 0.00 0.00% = 0.00% × (1 – 11.94%)

Based on: 10-K (reporting date: 2023-10-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 152,543,690 × $523.38
= $79,838,316,472.20

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (6.43% + 12.29% + 6.10% + 21.00% + 2.41% + 23.42%) ÷ 6
= 11.94%

WACC = 14.69%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Synopsys Inc., PRAT model

Microsoft Excel
Average Oct 31, 2023 Oct 31, 2022 Oct 31, 2021 Oct 31, 2020 Oct 31, 2019 Oct 31, 2018
Selected Financial Data (US$ in thousands)
Interest expense 1,178 1,698 3,365 5,140 11,659 15,607
Net income attributed to Synopsys 1,229,888 984,594 757,516 664,347 532,367 432,518
 
Effective income tax rate (EITR)1 6.43% 12.29% 6.10% 21.00% 2.41% 23.42%
 
Interest expense, after tax2 1,102 1,489 3,160 4,061 11,378 11,952
Interest expense (after tax) and dividends 1,102 1,489 3,160 4,061 11,378 11,952
 
EBIT(1 – EITR)3 1,230,990 986,083 760,676 668,408 543,745 444,470
 
Short-term debt — — 74,992 27,084 17,614 343,769
Long-term debt 18,078 20,824 25,094 100,823 120,093 125,535
Total Synopsys stockholders’ equity 6,147,308 5,515,725 5,295,137 4,907,404 4,083,013 3,479,152
Total capital 6,165,386 5,536,549 5,395,223 5,035,311 4,220,720 3,948,456
Financial Ratios
Retention rate (RR)4 1.00 1.00 1.00 0.99 0.98 0.97
Return on invested capital (ROIC)5 19.97% 17.81% 14.10% 13.27% 12.88% 11.26%
Averages
RR 0.99
ROIC 14.88%
 
FCFF growth rate (g)6 14.73%

Based on: 10-K (reporting date: 2023-10-31), 10-K (reporting date: 2022-10-31), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-10-31), 10-K (reporting date: 2019-10-31), 10-K (reporting date: 2018-10-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,178 × (1 – 6.43%)
= 1,102

3 EBIT(1 – EITR) = Net income attributed to Synopsys + Interest expense, after tax
= 1,229,888 + 1,102
= 1,230,990

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,230,990 – 1,102] ÷ 1,230,990
= 1.00

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,230,990 ÷ 6,165,386
= 19.97%

6 g = RR × ROIC
= 0.99 × 14.88%
= 14.73%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (79,856,394 × 14.69% – 1,514,588) ÷ (79,856,394 + 1,514,588)
= 12.56%

where:

Total capital, fair value0 = current fair value of Synopsys Inc. debt and equity (US$ in thousands)
FCFF0 = the last year Synopsys Inc. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Synopsys Inc. capital

FCFF growth rate (g) forecast

Synopsys Inc., H-model

Microsoft Excel
Year Value gt
1 g1 14.73%
2 g2 14.19%
3 g3 13.65%
4 g4 13.10%
5 and thereafter g5 12.56%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 14.73% + (12.56% – 14.73%) × (2 – 1) ÷ (5 – 1)
= 14.19%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 14.73% + (12.56% – 14.73%) × (3 – 1) ÷ (5 – 1)
= 13.65%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 14.73% + (12.56% – 14.73%) × (4 – 1) ÷ (5 – 1)
= 13.10%