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)

Procter & Gamble 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 7.96%
0¹	FCFF₀	14,365
1	FCFF₁	15,149	= 14,365 × (1 + 5.46%)	14,032
2	FCFF₂	15,931	= 15,149 × (1 + 5.16%)	13,668
3	FCFF₃	16,706	= 15,931 × (1 + 4.87%)	13,277
4	FCFF₄	17,469	= 16,706 × (1 + 4.57%)	12,860
5	FCFF₅	18,216	= 17,469 × (1 + 4.27%)	12,421
5	Terminal value (TV₅)	515,361	= 18,216 × (1 + 4.27%) ÷ (7.96% – 4.27%)	351,409
Intrinsic value of Procter & Gamble Co. capital				417,668
Less: Short-term and long-term debt (fair value)				33,178
Intrinsic value of Procter & Gamble Co. common stock				384,490

Intrinsic value of Procter & Gamble Co. common stock (per share)				$162.91
Current share price				$158.14

Based on: 10-K (reporting date: 2023-06-30).

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.

Procter & Gamble Co., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	373,232	0.92	8.43%
Short-term and long-term debt (fair value)	33,178	0.08	2.66%	= 3.28% × (1 – 18.94%)

Based on: 10-K (reporting date: 2023-06-30).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 2,360,135,282 × $158.14
= $373,231,793,495.48

Short-term and long-term 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
= (19.70% + 17.80% + 18.50% + 17.20% + 34.70% + 21.50%) ÷ 6
= 18.94%

WACC = 7.96%

FCFF growth rate (g) implied by PRAT model

Procter & Gamble Co., PRAT model

	Average	Jun 30, 2023	Jun 30, 2022	Jun 30, 2021	Jun 30, 2020	Jun 30, 2019	Jun 30, 2018
Selected Financial Data (US$ in millions)
Interest expense		756)	439)	502)	465)	509)	506)
Net earnings attributable to Procter & Gamble (P&G)		14,653)	14,742)	14,306)	13,027)	3,897)	9,750)

Effective income tax rate (EITR)¹		19.70%	17.80%	18.50%	17.20%	34.70%	21.50%

Interest expense, after tax²		607)	361)	409)	385)	332)	397)
Add: Dividends and dividend equivalents, preferred		282)	281)	271)	263)	263)	265)
Add: Dividends and dividend equivalents, common		8,742)	8,514)	8,020)	7,551)	7,256)	7,057)
Interest expense (after tax) and dividends		9,631)	9,156)	8,700)	8,199)	7,851)	7,719)

EBIT(1 – EITR)³		15,260)	15,103)	14,715)	13,412)	4,229)	10,147)

Debt due within one year		10,229)	8,645)	8,889)	11,183)	9,697)	10,423)
Long-term debt, excluding due within one year		24,378)	22,848)	23,099)	23,537)	20,395)	20,863)
Shareholders’ equity attributable to Procter & Gamble		46,777)	46,589)	46,378)	46,521)	47,194)	52,293)
Total capital		81,384)	78,082)	78,366)	81,241)	77,286)	83,579)
Financial Ratios
Retention rate (RR)⁴		0.37	0.39	0.41	0.39	-0.86	0.24
Return on invested capital (ROIC)⁵		18.75%	19.34%	18.78%	16.51%	5.47%	12.14%
Averages
RR	0.36
ROIC	15.17%

FCFF growth rate (g)⁶	5.46%

Based on: 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), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30).

¹ See details »

2023 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 756 × (1 – 19.70%)
= 607

³ EBIT(1 – EITR) = Net earnings attributable to Procter & Gamble (P&G) + Interest expense, after tax
= 14,653 + 607
= 15,260

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [15,260 – 9,631] ÷ 15,260
= 0.37

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 15,260 ÷ 81,384
= 18.75%

⁶ g = RR × ROIC
= 0.36 × 15.17%
= 5.46%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (406,410 × 7.96% – 14,365) ÷ (406,410 + 14,365)
= 4.27%

where:

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

FCFF growth rate (g) forecast

Procter & Gamble Co., H-model

Year	Value	g_t
1	g₁	5.46%
2	g₂	5.16%
3	g₃	4.87%
4	g₄	4.57%
5 and thereafter	g₅	4.27%

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)
= 5.46% + (4.27% – 5.46%) × (2 – 1) ÷ (5 – 1)
= 5.16%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 5.46% + (4.27% – 5.46%) × (3 – 1) ÷ (5 – 1)
= 4.87%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 5.46% + (4.27% – 5.46%) × (4 – 1) ÷ (5 – 1)
= 4.57%

Procter & Gamble Co. (NYSE:PG)

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