Facebook Inc. (FB)

Enterprise Value to FCFF (EV/FCFF)

Difficulty: Intermediate

Facebook Inc., FCFF calculation

USD $ in millions

12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Net income	15,934	10,217	3,688	2,940	1,500
Net noncash charges	6,395	5,133	4,127	2,779	2,046
Changes in assets and liabilities	1,887	758	784	(262)	676
Net cash provided by operating activities	24,216	16,108	8,599	5,457	4,222
Cash paid during the period for interest, net of tax¹	–	9	6	8	21
Purchases of property and equipment	(6,733)	(4,491)	(2,523)	(1,831)	(1,362)
Property and equipment acquired under capital leases	–	–	–	–	(11)
Free cash flow to the firm (FCFF)	17,483	11,626	6,082	3,634	2,870

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

Facebook Inc., interest paid, net of tax calculation

USD $ in millions

12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Effective Income Tax Rate (EITR)

EITR¹	22.60%	18.40%	40.40%	40.10%	45.50%
Interest Paid, Net of Tax
Cash paid during the period for interest, before tax	–	11	10	14	38
Less: Cash paid during the period for interest, tax²	–	2	4	6	17
Cash paid during the period for interest, net of tax	–	9	6	8	21

2017 Calculations

² Cash paid during the period for interest, tax = Cash paid during the period for interest × EITR
= – × 22.60% = –

Facebook Inc., current EV/FCFF calculation, comparison to benchmarks

Selected Financial Data (USD $ in millions)
Enterprise value (EV)	401,535
Free cash flow to the firm (FCFF)	17,483
Ratio
EV/FCFF	22.97
Benchmarks
EV/FCFF, Competitors
Adobe Systems Inc.	40.23
Alphabet Inc.	27.53
International Business Machines Corp.	11.63
Microsoft Corp.	23.19
Oracle Corp.	12.12
salesforce.com inc.	47.01
EV/FCFF, Sector
Software & Computer Services	22.59
EV/FCFF, Industry
Technology	21.14

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.

Facebook Inc., historical EV/FCFF calculation, comparison to benchmarks

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Selected Financial Data (USD $ in millions)
Enterprise value (EV)¹	519,216	349,081	292,238	207,357	148,564
Free cash flow to the firm (FCFF)²	17,483	11,626	6,082	3,634	2,870
Ratio
EV/FCFF³	29.70	30.03	48.05	57.05	51.77
Benchmarks
EV/FCFF, Competitors
Adobe Systems Inc.	33.45	25.29	30.64	28.06	27.45
Alphabet Inc.	27.18	18.05	24.85	26.71	31.10
International Business Machines Corp.	12.73	14.18	11.32	14.03	15.10
Microsoft Corp.	15.52	14.60	12.94	10.67	8.13
Oracle Corp.	15.07	11.24	12.09	10.98	8.91
salesforce.com inc.	27.87	36.70	53.67	409.10	49.51
EV/FCFF, Sector
Software & Computer Services	20.89	17.42	18.56	17.01	15.85
EV/FCFF, Industry
Technology	18.98	15.00	13.81	14.39	12.66

2017 Calculations

³ EV/FCFF = EV ÷ FCFF
= 519,216 ÷ 17,483 = 29.70

Ratio	Description	The company
EV/FCFF	Enterprise value to free cash flow to the firm is whole company valuation indicator.	Facebook Inc.'s EV/FCFF ratio declined from 2015 to 2016 and from 2016 to 2017.