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Microsoft Excel LibreOffice Calc


Present Value of Free Cash Flow to Equity (FCFE)

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 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's asset base.


Intrinsic Stock Value (Valuation Summary)

Apple Inc., free cash flow to equity (FCFE) forecast

USD $ in millions, except per share data

Microsoft Excel LibreOffice Calc
Year Value FCFEt or Terminal value (TVt) Calculation Present value at hidden%
01 FCFE0 hidden
1 FCFE1 hidden = hidden × (1 + hidden%) hidden
2 FCFE2 hidden = hidden × (1 + hidden%) hidden
3 FCFE3 hidden = hidden × (1 + hidden%) hidden
4 FCFE4 hidden = hidden × (1 + hidden%) hidden
5 FCFE5 hidden = hidden × (1 + hidden%) hidden
5 Terminal value (TV5) hidden = hidden × (1 + hidden%) ÷ (hidden% – hidden%) hidden
Intrinsic value of Apple's common stock hidden
Intrinsic value of Apple'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.


Required Rate of Return (r)

Microsoft Excel LibreOffice Calc
Assumptions
Rate of return on LT Treasury Composite1 RF hidden%
Expected rate of return on market portfolio2 E(RM) hidden%
Systematic risk (β) of Apple's common stock βAAPL hidden
Required rate of return on Apple's common stock3 rAAPL hidden%

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).

Calculations

2 See Details »

3 rAAPL = RF + βAAPL [E(RM) – RF]
= hidden% + hidden [hidden% – hidden%]
= hidden%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Apple Inc., PRAT model

Microsoft Excel LibreOffice Calc
Average Sep 30, 2017 Sep 24, 2016 Sep 26, 2015 Sep 27, 2014 Sep 28, 2013 Sep 29, 2012
Selected Financial Data (USD $ in millions)
Dividends and dividend equivalents declared hidden hidden hidden hidden hidden hidden
Net income hidden hidden hidden hidden hidden hidden
Net sales hidden hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden hidden
Shareholders' equity hidden hidden hidden hidden hidden hidden
Ratios
Retention rate1 hidden hidden hidden hidden hidden hidden
Profit margin2 hidden% hidden% hidden% hidden% hidden% hidden%
Asset turnover3 hidden hidden hidden hidden hidden hidden
Financial leverage4 hidden hidden hidden hidden hidden hidden
Averages
Retention rate hidden
Profit margin hidden%
Asset turnover hidden
Financial leverage hidden
Growth rate of FCFE (g)5 hidden%

2017 Calculations

1 Retention rate = (Net income – Dividends and dividend equivalents declared) ÷ Net income
= (hiddenhidden) ÷ hidden = hidden

2 Profit margin = 100 × Net income ÷ Net sales
= 100 × hidden ÷ hidden = hidden%

3 Asset turnover = Net sales ÷ Total assets
= hidden ÷ hidden = hidden

4 Financial leverage = Total assets ÷ Shareholders' equity
= hidden ÷ hidden = hidden

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= hidden × hidden% × hidden × hidden = hidden%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (hidden × hidden% – hidden) ÷ (hidden + hidden) = hidden%

where:
Equity market value0 = current market value of Apple's common stock (USD $ in millions)
FCFE0 = last year Apple's free cash flow to equity (USD $ in millions)
r = required rate of return on Apple's common stock


FCFE growth rate (g) forecast

Apple 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%