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Microsoft Excel LibreOffice Calc


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

Difficulty: Intermediate

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)

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

USD $ in thousands, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFFt or Terminal value (TVt) Calculation Present value at hidden%
01 FCFF0 hidden
1 FCFF1 hidden = hidden × (1 + hidden%) hidden
2 FCFF2 hidden = hidden × (1 + hidden%) hidden
3 FCFF3 hidden = hidden × (1 + hidden%) hidden
4 FCFF4 hidden = hidden × (1 + hidden%) hidden
5 FCFF5 hidden = hidden × (1 + hidden%) hidden
5 Terminal value (TV5) hidden = hidden × (1 + hidden%) ÷ (hidden% – hidden%) hidden
Intrinsic value of Adobe's capital hidden
Less: Debt and capital lease obligations, including current portion (fair value) hidden
Intrinsic value of Adobe's common stock hidden
Intrinsic value of Adobe's common stock (per share) $hidden
Current share price $hidden

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)

Adobe Systems Inc., cost of capital

Microsoft Excel LibreOffice Calc
Value1 Weight Required rate of return2 Calculation
Equity (fair value) hidden hidden hidden%
Debt and capital lease obligations, including current portion (fair value) hidden hidden hidden% = hidden% × (1 – hidden%)

1 USD $ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= hidden × $hidden = $hidden

   Debt and capital lease obligations, including current portion (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
= (hidden% + hidden% + hidden% + hidden% + hidden% + hidden%) ÷ 6 = hidden%

WACC = hidden%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Adobe Systems Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Dec 1, 2017 Dec 2, 2016 Nov 27, 2015 Nov 28, 2014 Nov 29, 2013 Nov 30, 2012
Selected Financial Data (USD $ in thousands)
Interest expense hidden hidden hidden hidden hidden hidden
Net income hidden hidden hidden hidden hidden hidden
Effective income tax rate (EITR)1 hidden% hidden% hidden% hidden% hidden% hidden%
Interest expense, after tax2 hidden hidden hidden hidden hidden hidden
Interest expense (after tax) and dividends hidden hidden hidden hidden hidden hidden
EBIT(1 – EITR)3 hidden hidden hidden hidden hidden hidden
Debt and capital lease obligations, current portion hidden hidden hidden hidden hidden hidden
Debt and capital lease obligations, excluding current portion hidden hidden hidden hidden hidden hidden
Stockholders' equity hidden hidden hidden hidden hidden hidden
Total capital hidden hidden hidden hidden hidden hidden
Ratios
Retention rate (RR)4 hidden hidden hidden hidden hidden hidden
Return on invested capital (ROIC)5 hidden% hidden% hidden% hidden% hidden% hidden%
Averages
RR hidden
ROIC hidden%
Growth rate of FCFF (g)6 hidden%

2017 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= hidden × (1 – hidden%) = hidden

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= hidden + hidden = hidden

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [hiddenhidden] ÷ hidden = hidden

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × hidden ÷ hidden = hidden%

6 g = RR × ROIC
= hidden × hidden% = hidden%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (hidden × hidden% – hidden) ÷ (hidden + hidden) = hidden%

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


FCFF growth rate (g) forecast

Adobe Systems Inc., H-model

Microsoft Excel LibreOffice Calc
Year Value gt
1 g1 hidden%
2 g2 hidden%
3 g3 hidden%
4 g4 hidden%
5 and thereafter g5 hidden%

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)
= hidden% + (hidden% – hidden%) × (2 – 1) ÷ (5 – 1) = hidden%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= hidden% + (hidden% – hidden%) × (3 – 1) ÷ (5 – 1) = hidden%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= hidden% + (hidden% – hidden%) × (4 – 1) ÷ (5 – 1) = hidden%