Stock Analysis on Net

Procter & Gamble Co. (NYSE:PG)

Present Value of Free Cash Flow to Equity (FCFE) 

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Procter & Gamble Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 8.94%
01 FCFE0 14,674
1 FCFE1 16,429 = 14,674 × (1 + 11.96%) 15,080
2 FCFE2 18,093 = 16,429 × (1 + 10.12%) 15,244
3 FCFE3 19,592 = 18,093 × (1 + 8.29%) 15,152
4 FCFE4 20,856 = 19,592 × (1 + 6.45%) 14,806
5 FCFE5 21,818 = 20,856 × (1 + 4.61%) 14,217
5 Terminal value (TV5) 527,296 = 21,818 × (1 + 4.61%) ÷ (8.94%4.61%) 343,599
Intrinsic value of Procter & Gamble Co. common stock 418,099
 
Intrinsic value of Procter & Gamble Co. common stock (per share) $178.49
Current share price $151.40

Based on: 10-K (reporting date: 2025-06-30).

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.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.54%
Expected rate of return on market portfolio2 E(RM) 14.92%
Systematic risk of Procter & Gamble Co. common stock βPG 0.42
 
Required rate of return on Procter & Gamble Co. common stock3 rPG 8.94%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rPG = RF + βPG [E(RM) – RF]
= 4.54% + 0.42 [14.92%4.54%]
= 8.94%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Procter & Gamble Co., PRAT model

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Average Jun 30, 2025 Jun 30, 2024 Jun 30, 2023 Jun 30, 2022 Jun 30, 2021 Jun 30, 2020
Selected Financial Data (US$ in millions)
Dividends and dividend equivalents, common 9,606 9,053 8,742 8,514 8,020 7,551
Dividends and dividend equivalents, preferred 291 284 282 281 271 263
Net earnings attributable to Procter & Gamble (P&G) 15,974 14,879 14,653 14,742 14,306 13,027
Net sales 84,284 84,039 82,006 80,187 76,118 70,950
Total assets 125,231 122,370 120,829 117,208 119,307 120,700
Shareholders’ equity attributable to Procter & Gamble 52,012 50,287 46,777 46,589 46,378 46,521
Financial Ratios
Retention rate1 0.39 0.38 0.39 0.41 0.43 0.41
Profit margin2 18.61% 17.37% 17.52% 18.03% 18.44% 17.99%
Asset turnover3 0.67 0.69 0.68 0.68 0.64 0.59
Financial leverage4 2.41 2.43 2.58 2.52 2.57 2.59
Averages
Retention rate 0.40
Profit margin 17.99%
Asset turnover 0.66
Financial leverage 2.52
 
FCFE growth rate (g)5 11.96%

Based on: 10-K (reporting date: 2025-06-30), 10-K (reporting date: 2024-06-30), 10-K (reporting date: 2023-06-30), 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30).

2025 Calculations

1 Retention rate = (Net earnings attributable to Procter & Gamble (P&G) – Dividends and dividend equivalents, common – Dividends and dividend equivalents, preferred) ÷ (Net earnings attributable to Procter & Gamble (P&G) – Dividends and dividend equivalents, preferred)
= (15,9749,606291) ÷ (15,974291)
= 0.39

2 Profit margin = 100 × (Net earnings attributable to Procter & Gamble (P&G) – Dividends and dividend equivalents, preferred) ÷ Net sales
= 100 × (15,974291) ÷ 84,284
= 18.61%

3 Asset turnover = Net sales ÷ Total assets
= 84,284 ÷ 125,231
= 0.67

4 Financial leverage = Total assets ÷ Shareholders’ equity attributable to Procter & Gamble
= 125,231 ÷ 52,012
= 2.41

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.40 × 17.99% × 0.66 × 2.52
= 11.96%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (354,635 × 8.94%14,674) ÷ (354,635 + 14,674)
= 4.61%

where:
Equity market value0 = current market value of Procter & Gamble Co. common stock (US$ in millions)
FCFE0 = the last year Procter & Gamble Co. free cash flow to equity (US$ in millions)
r = required rate of return on Procter & Gamble Co. common stock


FCFE growth rate (g) forecast

Procter & Gamble Co., H-model

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Year Value gt
1 g1 11.96%
2 g2 10.12%
3 g3 8.29%
4 g4 6.45%
5 and thereafter g5 4.61%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 11.96% + (4.61%11.96%) × (2 – 1) ÷ (5 – 1)
= 10.12%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 11.96% + (4.61%11.96%) × (3 – 1) ÷ (5 – 1)
= 8.29%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 11.96% + (4.61%11.96%) × (4 – 1) ÷ (5 – 1)
= 6.45%