Applied Materials Inc. (AMAT)

Enterprise Value to FCFF (EV/FCFF)

Difficulty: Intermediate

Applied Materials Inc., FCFF calculation

USD $ in millions

12 months ended	Oct 29, 2017	Oct 30, 2016	Oct 25, 2015	Oct 26, 2014	Oct 27, 2013	Oct 28, 2012
Net income	3,434	1,721	1,377	1,072	256	109
Net noncash charges	552	626	421	593	822	1,415
Changes in operating assets and liabilities, net of amounts acquired	(377)	119	(635)	135	(455)	327
Cash provided by operating activities	3,609	2,466	1,163	1,800	623	1,851
Cash payments for interest, net of tax¹	171	129	79	68	67	32
Capital expenditures	(345)	(253)	(215)	(241)	(197)	(162)
Proceeds from sale of facilities	–	–	–	25	7	–
Free cash flow to the firm (FCFF)	3,435	2,342	1,027	1,652	500	1,721

Item	Description	The company
FCFF	Free cash flow to the firm is the cash flow available to the Applied Materials Inc.'s suppliers of capital after all operating expenses have been paid and necessary investments in working and fixed capital have been made.	Applied Materials Inc.'s FCFF increased from 2015 to 2016 and from 2016 to 2017.

Applied Materials Inc., interest paid, net of tax calculation

USD $ in millions

12 months ended	Oct 29, 2017	Oct 30, 2016	Oct 25, 2015	Oct 26, 2014	Oct 27, 2013	Oct 28, 2012
Effective Income Tax Rate (EITR)

EITR¹	8.00%	14.50%	13.80%	26.00%	26.90%	65.50%
Interest Paid, Net of Tax
Cash payments for interest, before tax	186	151	92	92	92	94
Less: Cash payments for interest, tax²	15	22	13	24	25	62
Cash payments for interest, net of tax	171	129	79	68	67	32

2017 Calculations

² Cash payments for interest, tax = Cash payments for interest × EITR
= 186 × 8.00% = 15

Applied Materials Inc., current EV/FCFF calculation, comparison to benchmarks

Selected Financial Data (USD $ in millions)
Enterprise value (EV)	47,412
Free cash flow to the firm (FCFF)	3,435
Ratio
EV/FCFF	13.80
Benchmarks
EV/FCFF, Competitors
Apple Inc.	18.19
Broadcom Inc.	19.48
Cisco Systems Inc.	12.20
HP Inc.	11.40
Intel Corp.	23.76
NVIDIA Corp.	51.60
Qualcomm Inc.	16.72
Texas Instruments Inc.	23.20
EV/FCFF, Sector
Technology Hardware & Equipment	19.11
EV/FCFF, Industry
Technology	21.55

If company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.

Otherwise, if company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.

Applied Materials Inc., historical EV/FCFF calculation, comparison to benchmarks

	Oct 29, 2017	Oct 30, 2016	Oct 25, 2015	Oct 26, 2014	Oct 27, 2013	Oct 28, 2012
Selected Financial Data (USD $ in millions)
Enterprise value (EV)¹	53,528	35,185	21,445	28,662	20,056	12,944
Free cash flow to the firm (FCFF)²	3,435	2,342	1,027	1,652	500	1,721
Ratio
EV/FCFF³	15.58	15.02	20.88	17.35	40.09	7.52
Benchmarks
EV/FCFF, Competitors
Apple Inc.	17.70	11.95	9.80	12.50	10.06	12.81
Broadcom Inc.	18.68	25.32	20.50	35.59	24.38	14.96
Cisco Systems Inc.	8.85	9.16	8.20	8.07	7.62	6.26
HP Inc.	10.30	9.50	7.88	8.00	6.63	5.36
Intel Corp.	20.93	14.08	11.01	15.26	11.19	–
NVIDIA Corp.	37.90	13.08	11.73	11.29	6.92	–
Qualcomm Inc.	14.79	12.55	17.60	14.32	13.08	12.88
Texas Instruments Inc.	21.61	18.62	14.16	17.55	16.24	–
EV/FCFF, Sector
Technology Hardware & Equipment	16.96	12.70	10.51	12.42	10.19	–
EV/FCFF, Industry
Technology	18.98	15.00	13.81	14.39	12.66	–

2017 Calculations

³ EV/FCFF = EV ÷ FCFF
= 53,528 ÷ 3,435 = 15.58

Ratio	Description	The company
EV/FCFF	Enterprise value to free cash flow to the firm is whole company valuation indicator.	Applied Materials Inc.'s EV/FCFF ratio declined from 2015 to 2016 but then slightly increased from 2016 to 2017.