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)

Broadcom 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 13.53%
0¹	FCFF₀	19,035
1	FCFF₁	19,339	= 19,035 × (1 + 1.59%)	17,034
2	FCFF₂	20,059	= 19,339 × (1 + 3.73%)	15,564
3	FCFF₃	21,234	= 20,059 × (1 + 5.86%)	14,512
4	FCFF₄	22,930	= 21,234 × (1 + 7.99%)	13,805
5	FCFF₅	25,251	= 22,930 × (1 + 10.12%)	13,391
5	Terminal value (TV₅)	816,645	= 25,251 × (1 + 10.12%) ÷ (13.53% – 10.12%)	433,064
Intrinsic value of Broadcom Inc. capital				507,370
Less: 8.00% Mandatory Convertible Preferred Stock, Series A, $0.001 par value (fair value)				0
Less: Debt (fair value)				33,181
Intrinsic value of Broadcom Inc. common stock				474,189

Intrinsic value of Broadcom Inc. common stock (per share)				$1,023.24
Current share price				$1,256.82

Based on: 10-K (reporting date: 2023-10-29).

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.

Broadcom Inc., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	582,437	0.95	14.09%
8.00% Mandatory Convertible Preferred Stock, Series A, $0.001 par value (fair value)	0	0.00	0.00%
Debt (fair value)	33,181	0.05	3.58%	= 4.11% × (1 – 12.93%)

Based on: 10-K (reporting date: 2023-10-29).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 463,421,237 × $1,256.82
= $582,437,079,086.34

Debt (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
= (6.70% + 7.50% + 0.40% + 21.00% + 21.00% + 21.00%) ÷ 6
= 12.93%

WACC = 13.53%

FCFF growth rate (g) implied by PRAT model

Broadcom Inc., PRAT model

	Average	Oct 29, 2023	Oct 30, 2022	Oct 31, 2021	Nov 1, 2020	Nov 3, 2019	Nov 4, 2018
Selected Financial Data (US$ in millions)
Interest expense		1,622)	1,737)	1,885)	1,777)	1,444)	628)
Loss from discontinued operations, net of income taxes		—)	—)	—)	(1)	(12)	(19)
Net income attributable to Broadcom Inc. stockholders		14,082)	11,495)	6,736)	2,960)	2,724)	12,259)

Effective income tax rate (EITR)¹		6.70%	7.50%	0.40%	21.00%	21.00%	21.00%

Interest expense, after tax²		1,513)	1,607)	1,877)	1,404)	1,141)	496)
Add: Dividends to preferred stockholders		—)	272)	299)	297)	29)	—)
Add: Dividends to common stockholders		7,645)	6,733)	5,913)	5,235)	4,235)	2,921)
Interest expense (after tax) and dividends		9,158)	8,612)	8,089)	6,936)	5,405)	3,417)

EBIT(1 – EITR)³		15,595)	13,102)	8,613)	4,365)	3,877)	12,774)

Current portion of long-term debt		1,608)	440)	290)	827)	2,787)	—)
Long-term debt, excluding current portion		37,621)	39,075)	39,440)	40,235)	30,011)	17,493)
Stockholders’ equity		23,988)	22,709)	24,962)	23,874)	24,941)	26,657)
Total capital		63,217)	62,224)	64,692)	64,936)	57,739)	44,150)
Financial Ratios
Retention rate (RR)⁴		0.41	0.34	0.06	-0.59	-0.39	0.73
Return on invested capital (ROIC)⁵		24.67%	21.06%	13.31%	6.72%	6.71%	28.93%
Averages
RR	0.09
ROIC	16.90%

FCFF growth rate (g)⁶	1.59%

Based on: 10-K (reporting date: 2023-10-29), 10-K (reporting date: 2022-10-30), 10-K (reporting date: 2021-10-31), 10-K (reporting date: 2020-11-01), 10-K (reporting date: 2019-11-03), 10-K (reporting date: 2018-11-04).

¹ See details »

2023 Calculations

² Interest expense, after tax = Interest expense × (1 – EITR)
= 1,622 × (1 – 6.70%)
= 1,513

³ EBIT(1 – EITR) = Net income attributable to Broadcom Inc. stockholders – Loss from discontinued operations, net of income taxes + Interest expense, after tax
= 14,082 – 0 + 1,513
= 15,595

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [15,595 – 9,158] ÷ 15,595
= 0.41

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 15,595 ÷ 63,217
= 24.67%

⁶ g = RR × ROIC
= 0.09 × 16.90%
= 1.59%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (615,618 × 13.53% – 19,035) ÷ (615,618 + 19,035)
= 10.12%

where:

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

FCFF growth rate (g) forecast

Broadcom Inc., H-model

Year	Value	g_t
1	g₁	1.59%
2	g₂	3.73%
3	g₃	5.86%
4	g₄	7.99%
5 and thereafter	g₅	10.12%

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)
= 1.59% + (10.12% – 1.59%) × (2 – 1) ÷ (5 – 1)
= 3.73%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 1.59% + (10.12% – 1.59%) × (3 – 1) ÷ (5 – 1)
= 5.86%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 1.59% + (10.12% – 1.59%) × (4 – 1) ÷ (5 – 1)
= 7.99%

Broadcom Inc. (NASDAQ:AVGO)

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