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)

Apple Inc., 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 15.37%
0¹	FCFF₀	102,828
1	FCFF₁	137,236	= 102,828 × (1 + 33.46%)	118,951
2	FCFF₂	175,506	= 137,236 × (1 + 27.89%)	131,853
3	FCFF₃	214,661	= 175,506 × (1 + 22.31%)	139,782
4	FCFF₄	250,582	= 214,661 × (1 + 16.73%)	141,431
5	FCFF₅	278,542	= 250,582 × (1 + 11.16%)	136,265
5	Terminal value (TV₅)	7,346,628	= 278,542 × (1 + 11.16%) ÷ (15.37% – 11.16%)	3,594,033
Intrinsic value of Apple Inc. capital				4,262,315
Less: Commercial paper, term debt, and finance leases (fair value)				97,809
Intrinsic value of Apple Inc. common stock				4,164,506

Intrinsic value of Apple Inc. common stock (per share)				$269.69
Current share price				$169.30

Based on: 10-K (reporting date: 2023-09-30).

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.

Apple Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	2,614,310	0.96	15.74%
Commercial paper, term debt, and finance leases (fair value)	97,809	0.04	5.52%	= 6.53% × (1 – 15.47%)

Based on: 10-K (reporting date: 2023-09-30).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 15,441,881,000 × $169.30
= $2,614,310,453,300.00

Commercial paper, term debt, and finance leases (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
= (14.70% + 16.20% + 13.30% + 14.40% + 15.90% + 18.30%) ÷ 6
= 15.47%

WACC = 15.37%

FCFF growth rate (g) implied by PRAT model

Apple Inc., PRAT model

	Average	Sep 30, 2023	Sep 24, 2022	Sep 25, 2021	Sep 26, 2020	Sep 28, 2019	Sep 29, 2018
Selected Financial Data (US$ in millions)
Interest expense		3,933)	2,931)	2,645)	2,873)	3,576)	3,240)
Net income		96,995)	99,803)	94,680)	57,411)	55,256)	59,531)

Effective income tax rate (EITR)¹		14.70%	16.20%	13.30%	14.40%	15.90%	18.30%

Interest expense, after tax²		3,355)	2,456)	2,293)	2,459)	3,007)	2,647)
Add: Dividends and dividend equivalents declared		14,996)	14,793)	14,431)	14,087)	14,129)	13,735)
Interest expense (after tax) and dividends		18,351)	17,249)	16,724)	16,546)	17,136)	16,382)

EBIT(1 – EITR)³		100,350)	102,259)	96,973)	59,870)	58,263)	62,178)

Current portion of finance leases		165)	129)	79)	24)	—)	—)
Commercial paper		5,985)	9,982)	6,000)	4,996)	5,980)	11,964)
Current portion of term debt		9,822)	11,128)	9,613)	8,773)	10,260)	8,784)
Non-current portion of term debt		95,281)	98,959)	109,106)	98,667)	91,807)	93,735)
Non-current portion of finance leases		859)	812)	769)	637)	—)	—)
Shareholders’ equity		62,146)	50,672)	63,090)	65,339)	90,488)	107,147)
Total capital		174,258)	171,682)	188,657)	178,436)	198,535)	221,630)
Financial Ratios
Retention rate (RR)⁴		0.82	0.83	0.83	0.72	0.71	0.74
Return on invested capital (ROIC)⁵		57.59%	59.56%	51.40%	33.55%	29.35%	28.05%
Averages
RR	0.77
ROIC	43.25%

FCFF growth rate (g)⁶	33.46%

Based on: 10-K (reporting date: 2023-09-30), 10-K (reporting date: 2022-09-24), 10-K (reporting date: 2021-09-25), 10-K (reporting date: 2020-09-26), 10-K (reporting date: 2019-09-28), 10-K (reporting date: 2018-09-29).

¹ See details »

2023 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 3,933 × (1 – 14.70%)
= 3,355

³ EBIT(1 – EITR) = Net income + Interest expense, after tax
= 96,995 + 3,355
= 100,350

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [100,350 – 18,351] ÷ 100,350
= 0.82

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 100,350 ÷ 174,258
= 57.59%

⁶ g = RR × ROIC
= 0.77 × 43.25%
= 33.46%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (2,712,119 × 15.37% – 102,828) ÷ (2,712,119 + 102,828)
= 11.16%

where:

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

FCFF growth rate (g) forecast

Apple Inc., H-model

Year	Value	g_t
1	g₁	33.46%
2	g₂	27.89%
3	g₃	22.31%
4	g₄	16.73%
5 and thereafter	g₅	11.16%

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)
= 33.46% + (11.16% – 33.46%) × (2 – 1) ÷ (5 – 1)
= 27.89%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 33.46% + (11.16% – 33.46%) × (3 – 1) ÷ (5 – 1)
= 22.31%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 33.46% + (11.16% – 33.46%) × (4 – 1) ÷ (5 – 1)
= 16.73%

Apple Inc. (NASDAQ:AAPL)

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