Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Diamondback Energy Inc., FCFF calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
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The financial performance from 2017 to 2021 exhibits a significant transition in cash flow dynamics, moving from a period of heavy capital reinvestment toward substantial free cash flow generation.
- Operating Cash Flow Trends
- Net cash provided by operating activities demonstrated a consistent upward trajectory over the five-year period, increasing from 889 million USD in 2017 to 3,944 million USD in 2021. While a moderate contraction occurred in 2020, the overall trend indicates a robust and expanding capacity to generate cash from core operations.
- Free Cash Flow to the Firm (FCFF) Evolution
- FCFF experienced notable volatility in the initial years, dropping to a low of 16 million USD in 2018. Following this trough, a period of exponential growth was observed, with FCFF rising to 494 million USD in 2020 and further accelerating to 2,678 million USD by 2021. This trajectory reflects a dramatic increase in the cash available to all capital providers.
- Cash Conversion and Capital Allocation
- The relationship between operating cash flow and FCFF suggests a strategic shift in capital allocation. Between 2017 and 2019, the narrow margin between operating cash and FCFF implies that a vast majority of generated cash was utilized for capital expenditures. By 2021, this dynamic shifted significantly, with FCFF representing a much larger portion of operating cash flow, signaling a transition from an investment-heavy phase to a cash-harvesting phase.
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Interest Paid, Net of Tax
Diamondback Energy Inc., interest paid, net of tax calculation
US$ in millions
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2 2021 Calculation
Interest paid, net of capitalized interest, tax = Interest paid, net of capitalized interest × EITR
= 194 × 21.70% = 42
3 2021 Calculation
Capitalized interest, tax = Capitalized interest × EITR
= 88 × 21.70% = 19
An analysis of interest expenses and tax rates from 2017 to 2021 reveals a period of significant expansion in borrowing costs followed by a moderate contraction and a shift in interest capitalization. The overall trend indicates a peak in net interest payments in 2019, coinciding with a period of lower effective tax rates.
- Interest Paid, Net of Capitalized Interest and Tax
- A substantial upward trend occurred between 2017 and 2019, with net interest paid rising from US$ 37 million to a peak of US$ 206 million. This represents a significant increase in the company's cash outflow for interest. Following 2019, the trend reversed, with a gradual decline to US$ 190 million in 2020 and US$ 152 million in 2021.
- Capitalized Interest, Net of Tax
- Capitalized interest showed general growth over the five-year period. Starting at US$ 14 million in 2017, it rose to US$ 57 million in 2019. Despite a brief reduction to US$ 44 million in 2020, the value surged to its highest point of US$ 69 million in 2021, suggesting increased investment in long-term assets or infrastructure during the final year of the period.
- Effective Income Tax Rate (EITR)
- The effective income tax rate exhibited significant volatility, starting at a high of 35.00% in 2017 and decreasing to a low of 13.00% in 2019. From 2020 onward, a recovery trend was observed, with the rate rising to 19.10% and eventually reaching 21.70% by December 31, 2021.
The convergence of these trends suggests that while direct interest payments have decreased since 2019, the increase in capitalized interest in 2021 indicates that a larger portion of interest costs is being allocated to the balance sheet rather than the income statement. The fluctuations in the effective income tax rate further modulated the net impact of these interest costs on the company's financial position.
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Enterprise Value to FCFF Ratio, Current
Diamondback Energy Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 35,957) |
| Free cash flow to the firm (FCFF) | 2,678) |
| Valuation Ratio | |
| EV/FCFF | 13.43 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Chevron Corp. | 26.64 |
| ConocoPhillips | 22.50 |
| ExxonMobil Holdings Corp. | 28.72 |
| EV/FCFF, Sector | |
| Oil, Gas & Consumable Fuels | 18.90 |
| EV/FCFF, Industry | |
| Energy | 19.17 |
Based on: 10-K (reporting date: 2021-12-31).
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
Diamondback Energy Inc., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | Dec 31, 2017 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Enterprise value (EV)1 | 29,862) | 17,630) | 16,315) | 22,025) | 13,977) | |
| Free cash flow to the firm (FCFF)2 | 2,678) | 494) | 77) | 16) | 80) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 11.15 | 35.72 | 212.96 | 1,402.68 | 175.30 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Chevron Corp. | 13.33 | — | — | — | — | |
| ConocoPhillips | 10.72 | — | — | — | — | |
| ExxonMobil Holdings Corp. | 10.06 | — | — | — | — | |
| EV/FCFF, Sector | ||||||
| Oil, Gas & Consumable Fuels | 11.15 | — | — | — | — | |
| EV/FCFF, Industry | ||||||
| Energy | 11.54 | — | — | — | — | |
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
3 2021 Calculation
EV/FCFF = EV ÷ FCFF
= 29,862 ÷ 2,678 = 11.15
4 Click competitor name to see calculations.
The financial period between 2017 and 2021 reflects a significant transition in the relationship between the total market value of the firm and its ability to generate free cash flow. While the enterprise value experienced fluctuations, the exponential growth in free cash flow to the firm during the latter part of the period resulted in a dramatic compression of the valuation multiple.
- Enterprise Value (EV) Dynamics
- Enterprise value demonstrated a general upward trajectory, increasing from 13,977 million US dollars in 2017 to 29,862 million US dollars by 2021. A notable peak occurred in 2018 at 22,025 million US dollars, followed by a correction in 2019, before entering a period of sustained growth through 2021.
- Free Cash Flow to the Firm (FCFF) Evolution
- FCFF exhibited extreme volatility in the early years, dropping from 80 million US dollars in 2017 to a low of 16 million US dollars in 2018. However, a pivotal shift occurred after 2019, with FCFF increasing to 494 million US dollars in 2020 and surging to 2,678 million US dollars in 2021. This suggests a transition from a capital-intensive or low-yield phase toward a high-cash-generation phase.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio underscores a massive improvement in valuation efficiency. The ratio reached an extreme high of 1,402.68 in 2018, driven by the sharp decline in FCFF relative to a rising enterprise value. Subsequently, the ratio declined precipitously, reaching 35.72 in 2020 and further compressing to 11.15 by 2021. This downward trend indicates that the firm's cash flow generation grew at a rate far exceeding the growth of its enterprise value, resulting in a significantly more favorable and sustainable valuation multiple by the end of the analyzed period.
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