## Present Value of Free Cash Flow to Equity (FCFE)

Intermediate level

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)

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

US\$ in thousands, except per share data

Year Value FCFEt or Terminal value (TVt) Calculation Present value at 17.25%
01 FCFE0 891,300
1 FCFE1 744,911 = 891,300 × (1 + -16.42%) 635,311
2 FCFE2 682,612 = 744,911 × (1 + -8.36%) 496,521
3 FCFE3 680,547 = 682,612 × (1 + -0.30%) 422,186
4 FCFE4 733,347 = 680,547 × (1 + 7.76%) 388,005
5 FCFE5 849,357 = 733,347 × (1 + 15.82%) 383,265
5 Terminal value (TV5) 68,686,657 = 849,357 × (1 + 15.82%) ÷ (17.25%15.82%) 30,994,286
Intrinsic value of Autodesk Inc.’s common stock 33,319,574

Intrinsic value of Autodesk Inc.’s common stock (per share) \$151.44
Current share price \$327.61

Based on: 10-K (filing date: 2021-03-19).

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)

 Assumptions Rate of return on LT Treasury Composite1 RF 1.74% Expected rate of return on market portfolio2 E(RM) 11.71% Systematic risk of Autodesk Inc.’s common stock βADSK 1.56 Required rate of return on Autodesk Inc.’s common stock3 rADSK 17.25%

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).

= 1.74% + 1.56 [11.71%1.74%]
= 17.25%

### FCFE Growth Rate (g)

#### FCFE growth rate (g) implied by PRAT model

Autodesk Inc., PRAT model

Average Jan 31, 2021 Jan 31, 2020 Jan 31, 2019 Jan 31, 2018 Jan 31, 2017 Jan 31, 2016
Selected Financial Data (US\$ in thousands)
Net income (loss) 1,208,200  214,500  (80,800) (566,900) (582,100) (330,500)
Net revenue 3,790,400  3,274,300  2,569,800  2,056,600  2,031,000  2,504,100
Total assets 7,279,800  6,179,300  4,729,200  4,113,600  4,798,100  5,515,300
Stockholders’ equity (deficit) 965,500  (139,100) (210,900) (256,000) 733,600  1,619,600
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00 1.00
Profit margin2 31.88% 6.55% -3.14% -27.56% -28.66% -13.20%
Asset turnover3 0.52 0.53 0.54 0.50 0.42 0.45
Financial leverage4 7.54 6.54 3.41
Averages
Retention rate 1.00
Profit margin -5.69%
Asset turnover 0.50
Financial leverage 5.83

FCFE growth rate (g)5 -16.42%

Based on: 10-K (filing date: 2021-03-19), 10-K (filing date: 2020-03-19), 10-K (filing date: 2019-03-25), 10-K (filing date: 2018-03-22), 10-K (filing date: 2017-03-21), 10-K (filing date: 2016-03-23).

2021 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income (loss) ÷ Net revenue
= 100 × 1,208,200 ÷ 3,790,400
= 31.88%

3 Asset turnover = Net revenue ÷ Total assets
= 3,790,400 ÷ 7,279,800
= 0.52

4 Financial leverage = Total assets ÷ Stockholders’ equity (deficit)
= 7,279,800 ÷ 965,500
= 7.54

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × -5.69% × 0.50 × 5.83
= -16.42%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (72,078,562 × 17.25%891,300) ÷ (72,078,562 + 891,300)
= 15.82%

where:
Equity market value0 = current market value of Autodesk Inc.’s common stock (US\$ in thousands)
FCFE0 = the last year Autodesk Inc.’s free cash flow to equity (US\$ in thousands)
r = required rate of return on Autodesk Inc.’s common stock

#### FCFE growth rate (g) forecast

Autodesk Inc., H-model

Year Value gt
1 g1 -16.42%
2 g2 -8.36%
3 g3 -0.30%
4 g4 7.76%
5 and thereafter g5 15.82%

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)
= -16.42% + (15.82%-16.42%) × (2 – 1) ÷ (5 – 1)
= -8.36%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -16.42% + (15.82%-16.42%) × (3 – 1) ÷ (5 – 1)
= -0.30%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -16.42% + (15.82%-16.42%) × (4 – 1) ÷ (5 – 1)
= 7.76%