This company is transferred to the archive: financial data is no longer updated!

# Transocean Ltd. (RIG) | Present Value of Free Cash Flow to the Firm (FCFF)

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 Summery)

Transocean Ltd., free cash flow to the firm (FCFF) forecast

USD \$ in millions, except per share data

Year Value FCFFt or Terminal value (TVt) Calculation Present value at 9.08%
01 FCFF0 1,568
1 FCFF1 1,633  = 1,568  × (1 + 4.12%) 1,497
2 FCFF2 1,700  = 1,633  × (1 + 4.11%) 1,428
3 FCFF3 1,769  = 1,700  × (1 + 4.10%) 1,363
4 FCFF4 1,842  = 1,769  × (1 + 4.09%) 1,301
5 FCFF5 1,917  = 1,842  × (1 + 4.08%) 1,241
5 Terminal value (TV5) 39,898  = 1,917  × (1 + 4.08%) ÷ (9.08% – 4.08%) 25,831
Intrinsic value of 's capital 32,660
Less: Long-term debt, including current maturities (fair value) 13,912
Intrinsic value of 's common stock 18,748

Intrinsic value of 's common stock (per share) \$53.50
Current share price \$53.43

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)

Transocean Ltd., cost of capital

Value1 Weight Required rate of return2 Calculation
Equity (fair value) 18,723  0.57 12.84%
Long-term debt, including current maturities (fair value) 13,912  0.43 4.03% = 4.64% × (1 – 13.22%)

1 USD \$ in millions

2 Required rate of return on debt is after tax (estimated effective tax rate is 13.22%)

WACC = 9.08%

## FCFF Growth Rate (g)

### FCFF growth rate (g) implied by PRAT model

Transocean Ltd., PRAT model

Average Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008 Dec 31, 2007
Selected Financial Data (USD \$ in millions)
Income tax expense   395  311  754  743  253
Net income (loss) attributable to controlling interest   (5,725) 961  3,181  4,202  3,131
Tax rate1   –% 24.45% 19.16% 15.03% 7.48%

Interest expense, net of amounts capitalized   621  567  484  469  172
Interest expense, net of amounts capitalized, after tax2   621  428  391  399  159
Add: Dividends   763
Interest expense (after tax) and dividends   1,384  428  391  399  159

EBIT(1 – Tax Rate)3   (5,104) 1,389  3,572  4,601  3,290

Debt due within one year   2,039  2,012  1,868  664  6,172
Long-term debt   11,497  9,209  9,849  13,522  11,085
Controlling interest shareholders’ equity   15,701  21,383  20,552  16,524  12,566
Total capital   29,237  32,604  32,269  30,710  29,823
Ratios
Retention rate (RR)4   0.69 0.89 0.91 0.95
Return on invested capital (ROIC)5   -17.46% 4.26% 11.07% 14.98% 11.03%
Averages
RR 0.86
ROIC 4.78%

Growth rate of FCFF (g)6 4.12%

2011 Calculations

1 Tax rate = 100 × Income tax expense ÷ (Net income (loss) attributable to controlling interest + Income tax expense)
= 100 × 395 ÷ (-5,725 + 395) = –%

2 Interest expense, net of amounts capitalized, after tax = Interest expense, net of amounts capitalized × (1 – Tax rate)
= 621 × (1 – –%) = 621

3 EBIT(1 – Tax Rate) = Net income (loss) attributable to controlling interest + Interest expense, net of amounts capitalized, after tax
= -5,725 + 621 = -5,104

4 RR = [EBIT(1 – Tax Rate) – Interest expense (after tax) and dividends] ÷ EBIT(1 – Tax Rate)
= [-5,104 – 1,384] ÷ -5,104 = –

5 ROIC = 100 × EBIT(1 – Tax Rate) ÷ Total capital
= 100 × -5,104 ÷ 29,237 = -17.46%

6 g = RR × ROIC
= 0.86 × 4.78% = 4.12%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (32,635 × 9.08% – 1,568) ÷ (32,635 + 1,568) = 4.08%

where:
Total capital, fair value0 = current fair value of 's debt and equity (USD \$ in millions)
FCFF0 = last year 's free cash flow to the firm (USD \$ in millions)
WACC = weighted average cost of 's capital

### FCFF growth rate (g) forecast

Transocean Ltd., H-model

Year Value gt
1 g1 4.12%
2 g2 4.11%
3 g3 4.10%
4 g4 4.09%
5 and thereafter g5 4.08%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 4.12% + (4.08% – 4.12%) × (2 – 1) ÷ (5 – 1) = 4.11%

g2 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 4.12% + (4.08% – 4.12%) × (3 – 1) ÷ (5 – 1) = 4.10%

g2 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 4.12% + (4.08% – 4.12%) × (4 – 1) ÷ (5 – 1) = 4.09%