Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Celgene Corp., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
The financial performance from 2014 to 2018 is characterized by a general expansion in cash generation capabilities, with both operating cash flows and free cash flow to the firm exhibiting significant growth over the period despite a short-term contraction in 2015.
- Operating Cash Flow Trends
- Net cash provided by operating activities experienced a moderate decline in 2015, falling to US$ 2,484 million from US$ 2,806 million in 2014. This was followed by a period of rapid acceleration, with cash flows increasing to US$ 3,976 million in 2016 and peaking at US$ 5,246 million in 2017, before stabilizing at US$ 5,171 million in 2018.
- Free Cash Flow to the Firm (FCFF) Dynamics
- FCFF mirrored the trajectory of operating cash flows, decreasing to US$ 2,390 million in 2015 and subsequently rising sharply to reach a peak of US$ 5,493 million in 2017. The figure remained relatively stable in 2018 at US$ 5,411 million, representing a substantial increase from the 2014 baseline of US$ 2,825 million.
- Relationship Between OCF and FCFF
- A consistent pattern is observed where FCFF exceeds the net cash provided by operating activities in four of the five analyzed years. This divergence suggests that the additions to cash flow—such as the tax shield from interest expenses—outpaced the outflows associated with capital expenditures during these periods, thereby enhancing the total cash available to the firm's providers of capital.
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Interest Paid, Net of Tax
Celgene Corp., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
2 2018 Calculation
Interest paid, tax = Interest paid × EITR
= 689 × 17.20% = 119
A consistent upward trajectory in the net cost of interest is observed between 2014 and 2018, indicating a significant expansion in interest-bearing obligations over the five-year period.
- Interest Paid Trends
- Net interest payments grew steadily from 169 million USD in 2014 to 570 million USD in 2018. A notable surge occurred between 2015 and 2016, where the amount rose from 193 million USD to 444 million USD, marking the most substantial year-over-year increase in the series.
- Effective Income Tax Rate (EITR) Volatility
- The effective income tax rate demonstrated significant instability. After reaching a peak of 20.80% in 2015, the rate declined to a minimum of 2.40% in 2017 before returning to 17.20% in 2018. This volatility directly influences the net interest expense by altering the value of the tax shield provided by interest payments.
- Analysis of Net Interest and Tax Interactions
- Despite the sharp decline in the EITR in 2017, which typically increases the net cost of interest by reducing tax deductions, the overall trend of interest paid continued to climb. This suggests that the increase in gross interest expenses outweighed the impact of the fluctuating tax rates during this period.
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Enterprise Value to FCFF Ratio, Current
Celgene Corp., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 91,115) |
| Free cash flow to the firm (FCFF) | 5,411) |
| Valuation Ratio | |
| EV/FCFF | 16.84 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| AbbVie Inc. | 29.18 |
| Amgen Inc. | 27.81 |
| Bristol-Myers Squibb Co. | 11.08 |
| Danaher Corp. | 32.39 |
| Eli Lilly & Co. | 140.13 |
| Gilead Sciences Inc. | 21.49 |
| Johnson & Johnson | 32.37 |
| Merck & Co. Inc. | 29.35 |
| Pfizer Inc. | 19.54 |
| Regeneron Pharmaceuticals Inc. | 20.63 |
| Thermo Fisher Scientific Inc. | 37.24 |
| Vertex Pharmaceuticals Inc. | 40.69 |
Based on: 10-K (reporting date: 2018-12-31).
1 Click competitor name to see calculations.
If the company EV/FCFF is lower then the EV/FCFF of benchmark then company is relatively undervalued.
Otherwise, if the company EV/FCFF is higher then the EV/FCFF of benchmark then company is relatively overvalued.
Enterprise Value to FCFF Ratio, Historical
Celgene Corp., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2018 | Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 77,219) | 75,373) | 96,260) | 85,544) | 98,142) | |
| Free cash flow to the firm (FCFF)2 | 5,411) | 5,493) | 4,185) | 2,390) | 2,825) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 14.27 | 13.72 | 23.00 | 35.79 | 34.75 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| AbbVie Inc. | — | — | — | — | — | |
| Amgen Inc. | — | — | — | — | — | |
| Bristol-Myers Squibb Co. | — | — | — | — | — | |
| Danaher Corp. | — | — | — | — | — | |
| Eli Lilly & Co. | — | — | — | — | — | |
| Gilead Sciences Inc. | — | — | — | — | — | |
| Johnson & Johnson | — | — | — | — | — | |
| Merck & Co. Inc. | — | — | — | — | — | |
| Pfizer Inc. | — | — | — | — | — | |
| Regeneron Pharmaceuticals Inc. | — | — | — | — | — | |
| Thermo Fisher Scientific Inc. | — | — | — | — | — | |
| Vertex Pharmaceuticals Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).
3 2018 Calculation
EV/FCFF = EV ÷ FCFF
= 77,219 ÷ 5,411 = 14.27
4 Click competitor name to see calculations.
Between 2014 and 2018, a significant compression in the Enterprise Value to Free Cash Flow to the Firm (EV/FCFF) ratio is observed. This trend indicates a substantial shift in the valuation of the firm, characterized by a general decline in enterprise value occurring simultaneously with a strong increase in cash flow generation.
- Enterprise Value (EV) Trends
- The enterprise value exhibited volatility over the five-year period, starting at 98,142 million USD in 2014 and ending at 77,219 million USD in 2018. A notable contraction occurred between 2016 and 2017, where the value decreased from 96,260 million USD to 75,373 million USD, reflecting a downward trajectory in the overall market valuation of the entity.
- Free Cash Flow to the Firm (FCFF) Performance
- FCFF demonstrated consistent growth, increasing from 2,825 million USD in 2014 to a peak of 5,493 million USD in 2017. Despite a marginal dip to 5,411 million USD in 2018, the overall trend shows a significant expansion in the firm's ability to generate cash available to all capital providers, nearly doubling from the baseline year.
- EV/FCFF Ratio Analysis
- The EV/FCFF ratio underwent a sharp devaluation, falling from 34.75 in 2014 to 14.27 in 2018. The most pronounced decline occurred between 2015 and 2017, during which the ratio dropped from 35.79 to 13.72. This compression was driven by the divergence of the two underlying metrics: as the enterprise value trended lower, the FCFF grew substantially, resulting in a significantly lower multiple. This suggests that the market began valuing each unit of free cash flow at a much lower rate by the end of the period compared to the beginning.
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