Stock Analysis on Net
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Alphabet Inc. (NASDAQ:GOOG)

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

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

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

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 18.90%
01 FCFF0 72,644
1 FCFF1 91,394 = 72,644 × (1 + 25.81%) 76,867
2 FCFF2 112,933 = 91,394 × (1 + 23.57%) 79,885
3 FCFF3 137,015 = 112,933 × (1 + 21.32%) 81,515
4 FCFF4 163,158 = 137,015 × (1 + 19.08%) 81,639
5 FCFF5 190,628 = 163,158 × (1 + 16.84%) 80,223
5 Terminal value (TV5) 10,800,409 = 190,628 × (1 + 16.84%) ÷ (18.90% – 16.84%) 4,545,186
Intrinsic value of Alphabet Inc. capital 4,945,315
Less: Debt and finance lease liabilities (fair value) 48,100
Intrinsic value of Alphabet Inc. common stock 4,897,215
 
Intrinsic value of Alphabet Inc. common stock (per share) $400.43
Current share price $332.60

Based on: 10-K (reporting date: 2025-12-31).

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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)

Alphabet Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 4,067,698 0.99 19.08%
Debt and finance lease liabilities (fair value) 48,100 0.01 3.81% = 4.53% × (1 – 15.84%)

Based on: 10-K (reporting date: 2025-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 12,230,000,000 × $332.60
= $4,067,698,000,000.00

   Debt and finance lease liabilities (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
= (16.80% + 16.40% + 13.90% + 15.90% + 16.20%) ÷ 5
= 15.84%

WACC = 18.90%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Alphabet Inc., PRAT model

Microsoft Excel
Average Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Interest expense 736 268 308 357 346
Net income 132,170 100,118 73,795 59,972 76,033
 
Effective income tax rate (EITR)1 16.80% 16.40% 13.90% 15.90% 16.20%
 
Interest expense, after tax2 612 224 265 300 290
Add: Dividends and dividend equivalents declared 10,163 7,536 — — —
Interest expense (after tax) and dividends 10,775 7,760 265 300 290
 
EBIT(1 – EITR)3 132,782 100,342 74,060 60,272 76,323
 
Current finance lease liabilities 441 235 — — —
Short-term debt 1,996 3,299 1,363 298 113
Long-term debt, excluding current portion 46,547 10,883 13,253 14,701 14,817
Long-term finance lease liabilities 2,059 1,442 — — —
Stockholders’ equity 415,265 325,084 283,379 256,144 251,635
Total capital 466,308 340,943 297,995 271,143 266,565
Financial Ratios
Retention rate (RR)4 0.92 0.92 1.00 1.00 1.00
Return on invested capital (ROIC)5 28.48% 29.43% 24.85% 22.23% 28.63%
Averages
RR 0.97
ROIC 26.72%
 
FCFF growth rate (g)6 25.81%

Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

1 See details »

2025 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 736 × (1 – 16.80%)
= 612

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 132,170 + 612
= 132,782

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [132,782 – 10,775] ÷ 132,782
= 0.92

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 132,782 ÷ 466,308
= 28.48%

6 g = RR × ROIC
= 0.97 × 26.72%
= 25.81%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (4,115,798 × 18.90% – 72,644) ÷ (4,115,798 + 72,644)
= 16.84%

where:

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

FCFF growth rate (g) forecast

Alphabet Inc., H-model

Microsoft Excel
Year Value gt
1 g1 25.81%
2 g2 23.57%
3 g3 21.32%
4 g4 19.08%
5 and thereafter g5 16.84%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 25.81% + (16.84% – 25.81%) × (2 – 1) ÷ (5 – 1)
= 23.57%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 25.81% + (16.84% – 25.81%) × (3 – 1) ÷ (5 – 1)
= 21.32%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 25.81% + (16.84% – 25.81%) × (4 – 1) ÷ (5 – 1)
= 19.08%