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)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

Monsanto Co., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 13.31%
0¹	FCFF₀	2,347
1	FCFF₁	2,580	= 2,347 × (1 + 9.94%)	2,277
2	FCFF₂	2,831	= 2,580 × (1 + 9.73%)	2,205
3	FCFF₃	3,101	= 2,831 × (1 + 9.51%)	2,131
4	FCFF₄	3,389	= 3,101 × (1 + 9.30%)	2,056
5	FCFF₅	3,697	= 3,389 × (1 + 9.08%)	1,979
5	Terminal value (TV₅)	95,411	= 3,697 × (1 + 9.08%) ÷ (13.31% – 9.08%)	51,081
Intrinsic value of Monsanto Co. capital				61,730
Less: Debt (fair value)				8,480
Intrinsic value of Monsanto Co. common stock				53,250

Intrinsic value of Monsanto Co. common stock (per share)				$120.67
Current share price				$118.05

Based on: 10-K (reporting date: 2017-08-31).

¹ See details »

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.

Monsanto Co., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	52,094	0.86	15.02%
Debt (fair value)	8,480	0.14	2.79%	= 3.88% × (1 – 28.16%)

Based on: 10-K (reporting date: 2017-08-31).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 441,283,987 × $118.05
= $52,093,574,665.35

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
= (21.69% + 34.91% + 27.33% + 28.17% + 26.68% + 30.15%) ÷ 6
= 28.16%

WACC = 13.31%

FCFF growth rate (g) implied by PRAT model

Monsanto Co., PRAT model

	Average	Aug 31, 2017	Aug 31, 2016	Aug 31, 2015	Aug 31, 2014	Aug 31, 2013	Aug 31, 2012
Selected Financial Data (US$ in millions)
Interest expense		452)	436)	433)	248)	172)	191)
Income on discontinued operations		13)	17)	28)	13)	11)	6)
Net income attributable to Monsanto Company		2,260)	1,336)	2,314)	2,740)	2,482)	2,045)

Effective income tax rate (EITR)¹		21.69%	34.91%	27.33%	28.17%	26.68%	30.15%

Interest expense, after tax²		354)	284)	315)	178)	126)	133)
Add: Cash dividends		951)	947)	952)	916)	831)	682)
Interest expense (after tax) and dividends		1,305)	1,231)	1,267)	1,094)	957)	815)

EBIT(1 – EITR)³		2,601)	1,603)	2,601)	2,905)	2,597)	2,172)

Short-term debt, including current portion of long-term debt		870)	1,587)	615)	233)	51)	36)
Long-term debt, excluding current portion		7,254)	7,453)	8,429)	7,528)	2,061)	2,038)
Total Monsanto Company shareowners’ equity		6,438)	4,534)	6,990)	7,875)	12,559)	11,833)
Total capital		14,562)	13,574)	16,034)	15,636)	14,671)	13,907)
Financial Ratios
Retention rate (RR)⁴		0.50	0.23	0.51	0.62	0.63	0.62
Return on invested capital (ROIC)⁵		17.86%	11.81%	16.22%	18.58%	17.70%	15.62%
Averages
RR	0.58
ROIC	17.20%

FCFF growth rate (g)⁶	9.94%

Based on: 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31), 10-K (reporting date: 2015-08-31), 10-K (reporting date: 2014-08-31), 10-K (reporting date: 2013-08-31), 10-K (reporting date: 2012-08-31).

¹ See details »

2017 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 452 × (1 – 21.69%)
= 354

³ EBIT(1 – EITR) = Net income attributable to Monsanto Company – Income on discontinued operations + Interest expense, after tax
= 2,260 – 13 + 354
= 2,601

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,601 – 1,305] ÷ 2,601
= 0.50

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,601 ÷ 14,562
= 17.86%

⁶ g = RR × ROIC
= 0.58 × 17.20%
= 9.94%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (60,574 × 13.31% – 2,347) ÷ (60,574 + 2,347)
= 9.08%

where:

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

FCFF growth rate (g) forecast

Monsanto Co., H-model

Year	Value	g_t
1	g₁	9.94%
2	g₂	9.73%
3	g₃	9.51%
4	g₄	9.30%
5 and thereafter	g₅	9.08%

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)
= 9.94% + (9.08% – 9.94%) × (2 – 1) ÷ (5 – 1)
= 9.73%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 9.94% + (9.08% – 9.94%) × (3 – 1) ÷ (5 – 1)
= 9.51%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 9.94% + (9.08% – 9.94%) × (4 – 1) ÷ (5 – 1)
= 9.30%

Monsanto Co. (NYSE:MON)

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

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

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

FCFF growth rate (g) forecast