Facebook Inc. (FB)

Enterprise Value to FCFF (EV/FCFF)

Difficulty: Intermediate

Facebook Inc., FCFF calculation

USD $ in millions

12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Net income	22,112	15,934	10,217	3,688	2,940
Net noncash charges	8,689	6,395	5,133	4,127	2,779
Changes in assets and liabilities	(1,527)	1,887	758	784	(262)
Net cash provided by operating activities	29,274	24,216	16,108	8,599	5,457
Cash paid during the period for interest, net of tax¹	1	–	9	6	8
Purchases of property and equipment, net	(13,915)	(6,733)	(4,491)	(2,523)	(1,831)
Free cash flow to the firm (FCFF)	15,360	17,483	11,626	6,082	3,634

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 2016 to 2017 but then slightly declined from 2017 to 2018.

Facebook Inc., interest paid, net of tax calculation

USD $ in millions

12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Effective Income Tax Rate (EITR)

EITR¹	12.80%	22.60%	18.40%	40.40%	40.10%
Interest Paid, Net of Tax
Cash paid during the period for interest, before tax	1	–	11	10	14
Less: Cash paid during the period for interest, tax²	–	–	2	4	6
Cash paid during the period for interest, net of tax	1	–	9	6	8

2018 Calculations

² Cash paid during the period for interest, tax = Cash paid during the period for interest × EITR
= 1 × 12.80% = 0

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

Selected Financial Data (USD $ in millions)
Enterprise value (EV)	467,695
Free cash flow to the firm (FCFF)	15,360
Ratio
EV/FCFF	30.45
Benchmarks
EV/FCFF, Competitors
Adobe Inc.	34.63
Alphabet Inc.	32.70
International Business Machines Corp.	12.31
Intuit Inc.	32.69
Microsoft Corp.	26.83
Oracle Corp.	12.67
salesforce.com inc.	40.94
EV/FCFF, Sector
Software & Computer Services	25.71
EV/FCFF, Industry
Technology	20.76

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, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Selected Financial Data (USD $ in millions)
Enterprise value (EV)¹	434,618	519,216	349,081	292,238	207,357
Free cash flow to the firm (FCFF)²	15,360	17,483	11,626	6,082	3,634
Ratio
EV/FCFF³	28.30	29.70	30.03	48.05	57.05
Benchmarks
EV/FCFF, Competitors
Adobe Inc.	31.36	33.45	25.29	30.64	28.06
Alphabet Inc.	29.97	27.15	18.05	24.85	26.71
International Business Machines Corp.	12.27	12.20	14.18	11.32	14.03
Intuit Inc.	27.69	25.66	31.97	17.54	17.62
Microsoft Corp.	23.29	15.52	14.60	12.94	10.67
Oracle Corp.	11.92	15.07	11.24	12.09	10.98
salesforce.com inc.	40.62	27.87	36.70	53.67	409.10
EV/FCFF, Sector
Software & Computer Services	23.16	20.94	17.56	18.55	17.03
EV/FCFF, Industry
Technology	19.11	18.99	15.02	13.83	14.40

2018 Calculations

³ EV/FCFF = EV ÷ FCFF
= 434,618 ÷ 15,360 = 28.30

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 2016 to 2017 and from 2017 to 2018.