Stock Analysis on Net

Microsoft Corp. (NASDAQ:MSFT)

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Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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Intrinsic Stock Value (Valuation Summary)

Microsoft Corp., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at
01 FCFF0
1 FCFF1 = × (1 + )
2 FCFF2 = × (1 + )
3 FCFF3 = × (1 + )
4 FCFF4 = × (1 + )
5 FCFF5 = × (1 + )
5 Terminal value (TV5) = × (1 + ) ÷ ()
Intrinsic value of Microsoft Corp. capital
Less: Debt and finance lease liabilities (fair value)
Intrinsic value of Microsoft Corp. common stock
 
Intrinsic value of Microsoft Corp. common stock (per share)
Current share price

Based on: 10-K (reporting date: 2022-06-30).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Weighted Average Cost of Capital (WACC)

Microsoft Corp., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value)
Debt and finance lease liabilities (fair value) = × (1 – )

Based on: 10-K (reporting date: 2022-06-30).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= ×
=

   Debt and finance lease liabilities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= ( + + + + + ) ÷ 6
=

WACC =


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Microsoft Corp., PRAT model

Microsoft Excel
Average Jun 30, 2022 Jun 30, 2021 Jun 30, 2020 Jun 30, 2019 Jun 30, 2018 Jun 30, 2017
Selected Financial Data (US$ in millions)
Interest expense
Net income
 
Effective income tax rate (EITR)1
 
Interest expense, after tax2
Add: Common stock cash dividends
Interest expense (after tax) and dividends
 
EBIT(1 – EITR)3
 
Short-term debt
Current portion of long-term debt
Current finance lease liabilities
Long-term debt, excluding current portion
Long-term finance lease liabilities
Stockholders’ equity
Total capital
Financial Ratios
Retention rate (RR)4
Return on invested capital (ROIC)5
Averages
RR
ROIC
 
FCFF growth rate (g)6

Based on: 10-K (reporting date: 2022-06-30), 10-K (reporting date: 2021-06-30), 10-K (reporting date: 2020-06-30), 10-K (reporting date: 2019-06-30), 10-K (reporting date: 2018-06-30), 10-K (reporting date: 2017-06-30).

1 See details »

2022 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= × (1 – )
=

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= +
=

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [] ÷
=

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × ÷
=

6 g = RR × ROIC
= ×
=


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × ( × ) ÷ ( + )
=

where:

Total capital, fair value0 = current fair value of Microsoft Corp. debt and equity (US$ in millions)
FCFF0 = the last year Microsoft Corp. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Microsoft Corp. capital


FCFF growth rate (g) forecast

Microsoft Corp., H-model

Microsoft Excel
Year Value gt
1 g1
2 g2
3 g3
4 g4
5 and thereafter g5

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= + () × (2 – 1) ÷ (5 – 1)
=

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= + () × (3 – 1) ÷ (5 – 1)
=

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= + () × (4 – 1) ÷ (5 – 1)
=