Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
Fortinet Inc., FCFF calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 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).
A consistent upward trajectory is observed in both net cash provided by operating activities and free cash flow to the firm (FCFF) over the five-year period ending December 31, 2022. Both metrics demonstrate uninterrupted annual growth, signaling strong operational cash generation and an increasing capacity to generate value for the firm's providers of capital.
- Net Cash Provided by Operating Activities
- Operational cash flow grew from 638.9 million US dollars in 2018 to 1.73 billion US dollars in 2022. The most significant acceleration in growth occurred between 2019 and 2021, with the annual increase peaking in 2021. While the growth rate moderated in 2022, the absolute value continued to climb, representing a total increase of approximately 171% over the analyzed period.
- Free Cash Flow to the Firm (FCFF)
- FCFF exhibited a steady increase, rising from 585.9 million US dollars in 2018 to 1.46 billion US dollars in 2022. This growth pattern closely mirrors the trend seen in operating cash flows, indicating that the firm has successfully scaled its free cash generation in tandem with its operational expansion. The compound growth in FCFF reflects a disciplined approach to balancing capital expenditures against cash inflows.
- Cash Conversion Efficiency
- The relationship between operating cash flow and FCFF remains tight, with FCFF consistently representing a high percentage of net cash provided by operating activities. The conversion ratio remained above 80% throughout the period, suggesting that capital expenditures and other adjustments to reach FCFF have been managed efficiently relative to the overall growth in cash generation.
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Interest Paid, Net of Tax
Fortinet Inc., interest paid, net of tax calculation
US$ in thousands
Based on: 10-K (reporting date: 2022-12-31), 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).
2 2022 Calculation
Cash paid for interest, tax = Cash paid for interest × EITR
= 16,000 × 3.22% = 515
The financial data indicates a significant shift in tax obligations and interest expenditures over the five-year period ending December 31, 2022.
- Effective Income Tax Rate (EITR) Trends
- A pronounced downward trajectory is observed in the effective income tax rate from 2018 through 2021. The rate decreased from 21.00% in 2018 to 13.90% in 2019, continuing to decline to 9.82% in 2020 and reaching a low of 2.24% in 2021. A marginal increase occurred in 2022, with the rate adjusting to 3.22%.
- Cash Paid for Interest Analysis
- Cash outflows for interest, net of tax, were not recorded between 2018 and 2020. In 2021, payments were reported at 8,212 thousand US dollars, which surged to 15,485 thousand US dollars by December 31, 2022. This represents a substantial increase of approximately 88.6% within one fiscal year.
- Observation on Fiscal Impact
- The period characterized by the lowest effective tax rates coincides with the emergence and rapid growth of net interest payments. While the EITR remained significantly lower in 2021 and 2022 compared to 2018, the cash burden associated with interest payments increased sharply during the final two years of the observed period.
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Enterprise Value to FCFF Ratio, Current
Fortinet Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in thousands) | |
| Enterprise value (EV) | 50,665,163) |
| Free cash flow to the firm (FCFF) | 1,464,885) |
| Valuation Ratio | |
| EV/FCFF | 34.59 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Accenture PLC | 13.13 |
| Adobe Inc. | 9.50 |
| AppLovin Corp. | 22.22 |
| Cadence Design Systems Inc. | 50.81 |
| Datadog Inc. | 64.72 |
| International Business Machines Corp. | 21.26 |
| Intuit Inc. | 10.78 |
| Microsoft Corp. | 58.80 |
| Oracle Corp. | — |
| Palantir Technologies Inc. | 174.41 |
| Palo Alto Networks Inc. | 62.27 |
| Salesforce Inc. | 12.89 |
| ServiceNow Inc. | 22.30 |
| Synopsys Inc. | 56.20 |
| Workday Inc. | 16.05 |
| EV/FCFF, Sector | |
| Software & Services | 53.32 |
| EV/FCFF, Industry | |
| Information Technology | 68.65 |
Based on: 10-K (reporting date: 2022-12-31).
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
Fortinet Inc., historical EV/FCFF calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in thousands) | ||||||
| Enterprise value (EV)1 | 44,929,542) | 50,710,379) | 26,223,379) | 16,264,089) | 13,349,100) | |
| Free cash flow to the firm (FCFF)2 | 1,464,885) | 1,212,012) | 957,800) | 715,800) | 585,900) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 30.67 | 41.84 | 27.38 | 22.72 | 22.78 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Accenture PLC | 16.99 | 24.76 | — | — | — | |
| Adobe Inc. | 20.82 | 33.61 | 40.43 | — | — | |
| AppLovin Corp. | — | — | — | — | — | |
| Cadence Design Systems Inc. | 44.54 | 35.05 | — | — | — | |
| Datadog Inc. | 66.00 | 198.40 | — | — | — | |
| International Business Machines Corp. | 16.47 | 13.10 | — | — | — | |
| Intuit Inc. | 32.85 | 48.64 | — | — | — | |
| Microsoft Corp. | 30.26 | 36.19 | — | — | — | |
| Oracle Corp. | 31.60 | 16.36 | — | — | — | |
| Palantir Technologies Inc. | 82.97 | 66.45 | — | — | — | |
| Palo Alto Networks Inc. | 29.30 | 32.74 | — | — | — | |
| Salesforce Inc. | 35.97 | 44.91 | — | — | — | |
| ServiceNow Inc. | 40.87 | 60.12 | — | — | — | |
| Synopsys Inc. | 30.82 | 38.59 | 42.88 | — | — | |
| Workday Inc. | 45.74 | 57.52 | — | — | — | |
| EV/FCFF, Sector | ||||||
| Software & Services | 28.89 | 32.08 | — | — | — | |
| EV/FCFF, Industry | ||||||
| Information Technology | 26.47 | 27.37 | — | — | — | |
Based on: 10-K (reporting date: 2022-12-31), 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).
3 2022 Calculation
EV/FCFF = EV ÷ FCFF
= 44,929,542 ÷ 1,464,885 = 30.67
4 Click competitor name to see calculations.
The financial trajectory between 2018 and 2022 is characterized by a period of aggressive valuation expansion followed by a correction, occurring alongside a consistent and linear increase in cash flow generation.
- Enterprise Value (EV) Trends
- Enterprise value experienced rapid growth over the majority of the period, rising from 13.3 billion in 2018 to a peak of 50.7 billion in 2021. This trajectory indicates a significant increase in the market's valuation of the firm's operations. However, a reversal occurred in 2022, with the value contracting to 44.9 billion.
- Free Cash Flow to the Firm (FCFF) Performance
- A steady and uninterrupted upward trend is observed in FCFF. Starting at 585.9 million in 2018, the figure grew every consecutive year, reaching 1.46 billion by the end of 2022. This consistent growth underscores a strengthening capacity to generate cash available to all capital providers, regardless of the volatility seen in the overall enterprise valuation.
- EV/FCFF Ratio Dynamics
- The EV/FCFF ratio remained stable through 2019 at approximately 22.7x before entering a phase of expansion. The ratio peaked in 2021 at 41.84, reflecting a valuation that grew substantially faster than the underlying cash flows. In 2022, the ratio compressed to 30.67, a result of the simultaneous decrease in enterprise value and the continued increase in FCFF, suggesting a normalization of the valuation multiple.
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