Enterprise Value to FCFF (EV/FCFF)
Free Cash Flow to The Firm (FCFF)
PayPal Holdings Inc., FCFF calculation
US$ in millions
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).
The five-year period from 2018 to 2022 exhibits a non-linear trajectory for both net cash provided by operating activities and free cash flow to the firm (FCFF). Both metrics experienced an initial contraction in 2019, followed by a period of sustained growth that peaked in 2021, before undergoing a moderate decline in 2022.
- Operating Cash Flow Trends
- Net cash provided by operating activities fluctuated from US$ 5,483 million in 2018 to a period low of US$ 4,561 million in 2019. A subsequent recovery occurred over the following two years, reaching a peak of US$ 6,340 million in 2021, which represents a 39% increase from the 2019 trough, before retreating to US$ 5,813 million in 2022.
- Free Cash Flow to the Firm (FCFF) Dynamics
- FCFF movements mirrored the operating cash flow trends closely. The value decreased from US$ 4,723 million in 2018 to US$ 3,938 million in 2019. This was followed by a growth phase, ascending to US$ 5,266 million in 2020 and peaking at US$ 5,619 million in 2021, eventually settling at US$ 5,313 million by the end of 2022.
- Cash Flow Conversion Efficiency
- A high and stable conversion rate of operating cash flow to FCFF is evident across the analysis period. The ratio of FCFF to operating cash flow remained consistently strong, ranging approximately between 86% and 91%. This indicates a disciplined approach to capital expenditures relative to the cash generated from core operations.
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Interest Paid, Net of Tax
PayPal Holdings Inc., interest paid, net of tax calculation
US$ in millions
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
= 280 × 28.10% = 79
The financial period from 2018 to 2022 is characterized by a significant increase in the net cash outflows associated with interest payments, occurring alongside a general upward trajectory in the effective income tax rate.
- Cash Paid for Interest, Net of Tax
- A consistent growth pattern is observed in the net cash paid for interest. Outflows rose marginally from 60 million US dollars in 2018 to 64 million US dollars in 2019, followed by a substantial increase to 158 million US dollars in 2020. This upward trend continued through 2021 and 2022, reaching 201 million US dollars. The total net interest cost increased by approximately 235% over the five-year period, with the most pronounced acceleration occurring between 2019 and 2020.
- Effective Income Tax Rate (EITR)
- The effective income tax rate exhibited a steady climb from 12.50% in 2018 to 28.10% in 2022. Aside from a minor contraction to 17.00% in 2020, the rate increased annually. While a higher effective tax rate typically increases the value of the tax shield provided by interest expenses, the overall increase in cash paid for interest indicates that the growth in nominal interest obligations has significantly outweighed any offsetting tax benefits.
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Enterprise Value to FCFF Ratio, Current
PayPal Holdings Inc., current EV/FCFF calculation, comparison to benchmarks
| Selected Financial Data (US$ in millions) | |
| Enterprise value (EV) | 37,147) |
| Free cash flow to the firm (FCFF) | 5,313) |
| Valuation Ratio | |
| EV/FCFF | 6.99 |
| Benchmarks | |
| EV/FCFF, Competitors1 | |
| Accenture PLC | 10.60 |
| Adobe Inc. | 9.16 |
| AppLovin Corp. | 21.94 |
| Cadence Design Systems Inc. | 57.59 |
| Datadog Inc. | 105.01 |
| International Business Machines Corp. | 19.45 |
| Intuit Inc. | 8.55 |
| Microsoft Corp. | 56.79 |
| Oracle Corp. | — |
| Palantir Technologies Inc. | 212.56 |
| Palo Alto Networks Inc. | 79.88 |
| Salesforce Inc. | 13.58 |
| ServiceNow Inc. | 29.48 |
| Synopsys Inc. | 61.83 |
| Workday Inc. | 14.87 |
| EV/FCFF, Sector | |
| Software & Services | 54.27 |
| EV/FCFF, Industry | |
| Information Technology | 80.84 |
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
PayPal Holdings 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 millions) | ||||||
| Enterprise value (EV)1 | 55,025) | 108,217) | 278,044) | 112,347) | 79,413) | |
| Free cash flow to the firm (FCFF)2 | 5,313) | 5,619) | 5,266) | 3,938) | 4,723) | |
| Valuation Ratio | ||||||
| EV/FCFF3 | 10.36 | 19.26 | 52.80 | 28.53 | 16.81 | |
| Benchmarks | ||||||
| EV/FCFF, Competitors4 | ||||||
| Accenture PLC | 16.99 | 24.76 | 17.90 | — | — | |
| 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
= 55,025 ÷ 5,313 = 10.36
4 Click competitor name to see calculations.
The analysis of the Enterprise Value to Free Cash Flow to the Firm (EV/FCFF) metric between 2018 and 2022 reveals a period of significant valuation volatility. The ratio underwent a dramatic expansion peaking in 2020, followed by a sharp contraction, while the underlying cash flow generation remained relatively stable.
- Enterprise Value (EV) Trends
- A substantial fluctuation in Enterprise Value is observed throughout the period. The value grew from 79,413 million US$ in 2018 to a peak of 278,044 million US$ in 2020. This peak was followed by a rapid decline, with the value falling to 108,217 million US$ in 2021 and further decreasing to 55,025 million US$ by the end of 2022, representing the lowest valuation within the analyzed timeframe.
- Free Cash Flow to the Firm (FCFF) Performance
- In contrast to the volatility of the Enterprise Value, the Free Cash Flow to the Firm exhibited relative stability. After a slight decrease from 4,723 million US$ in 2018 to 3,938 million US$ in 2019, FCFF grew steadily to reach a peak of 5,619 million US$ in 2021. The 2022 figure of 5,313 million US$ indicates a consistent capacity to generate cash flow, maintaining a narrow range compared to the fluctuations in market valuation.
- EV/FCFF Ratio Interpretation
- The EV/FCFF ratio reflects a severe expansion and subsequent compression of valuation multiples. The ratio increased from 16.81 in 2018 to a high of 52.80 in 2020, suggesting a period of high market premiums. Following this peak, the ratio contracted sharply to 19.26 in 2021 and reached a low of 10.36 in 2022. This trend indicates that the decrease in the ratio was driven almost entirely by the reduction in Enterprise Value rather than a deterioration in the firm's cash flow generation capabilities.
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