Stock Analysis on Net
Stock Analysis on Net

Ross Stores Inc. (NASDAQ:ROST)

This company has been moved to the archive! The financial data has not been updated since December 7, 2022.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Ross Stores Inc., free cash flow to equity (FCFE) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 14.15%
01 FCFE0 1,116,009
1 FCFE1 1,541,357 = 1,116,009 × (1 + 38.11%) 1,350,278
2 FCFE2 2,024,465 = 1,541,357 × (1 + 31.34%) 1,553,639
3 FCFE3 2,521,930 = 2,024,465 × (1 + 24.57%) 1,695,480
4 FCFE4 2,970,892 = 2,521,930 × (1 + 17.80%) 1,749,711
5 FCFE5 3,298,640 = 2,970,892 × (1 + 11.03%) 1,701,901
5 Terminal value (TV5) 117,421,897 = 3,298,640 × (1 + 11.03%) ÷ (14.15% – 11.03%) 60,582,669
Intrinsic value of Ross Stores Inc. common stock 68,633,678
 
Intrinsic value of Ross Stores Inc. common stock (per share) $199.30
Current share price $115.36

Based on: 10-K (reporting date: 2022-01-29).

1 See details »

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.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.81%
Expected rate of return on market portfolio2 E(RM) 13.55%
Systematic risk of Ross Stores Inc. common stock βROST 1.07
 
Required rate of return on Ross Stores Inc. common stock3 rROST 14.15%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rROST = RF + βROST [E(RM) – RF]
= 4.81% + 1.07 [13.55% – 4.81%]
= 14.15%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Ross Stores Inc., PRAT model

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Average Jan 29, 2022 Jan 30, 2021 Feb 1, 2020 Feb 2, 2019 Feb 3, 2018 Jan 28, 2017
Selected Financial Data (US$ in thousands)
Dividends declared 405,123 101,404 369,793 337,189 247,526 214,640
Net earnings 1,722,589 85,382 1,660,928 1,587,457 1,362,753 1,117,654
Sales 18,916,244 12,531,565 16,039,073 14,983,541 14,134,732 12,866,757
Total assets 13,640,256 12,717,867 9,348,367 6,073,691 5,722,051 5,309,351
Stockholders’ equity 4,060,050 3,290,640 3,359,249 3,305,746 3,049,308 2,748,017
Financial Ratios
Retention rate1 0.76 -0.19 0.78 0.79 0.82 0.81
Profit margin2 9.11% 0.68% 10.36% 10.59% 9.64% 8.69%
Asset turnover3 1.39 0.99 1.72 2.47 2.47 2.42
Financial leverage4 3.36 3.86 2.78 1.84 1.88 1.93
Averages
Retention rate 0.79
Profit margin 9.68%
Asset turnover 1.91
Financial leverage 2.61
 
FCFE growth rate (g)5 38.11%

Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).

2022 Calculations

1 Retention rate = (Net earnings – Dividends declared) ÷ Net earnings
= (1,722,589 – 405,123) ÷ 1,722,589
= 0.76

2 Profit margin = 100 × Net earnings ÷ Sales
= 100 × 1,722,589 ÷ 18,916,244
= 9.11%

3 Asset turnover = Sales ÷ Total assets
= 18,916,244 ÷ 13,640,256
= 1.39

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 13,640,256 ÷ 4,060,050
= 3.36

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.79 × 9.68% × 1.91 × 2.61
= 38.11%

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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (39,726,640 × 14.15% – 1,116,009) ÷ (39,726,640 + 1,116,009)
= 11.03%

where:
Equity market value0 = current market value of Ross Stores Inc. common stock (US$ in thousands)
FCFE0 = the last year Ross Stores Inc. free cash flow to equity (US$ in thousands)
r = required rate of return on Ross Stores Inc. common stock

FCFE growth rate (g) forecast

Ross Stores Inc., H-model

Microsoft Excel
Year Value gt
1 g1 38.11%
2 g2 31.34%
3 g3 24.57%
4 g4 17.80%
5 and thereafter g5 11.03%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 38.11% + (11.03% – 38.11%) × (2 – 1) ÷ (5 – 1)
= 31.34%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 38.11% + (11.03% – 38.11%) × (3 – 1) ÷ (5 – 1)
= 24.57%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 38.11% + (11.03% – 38.11%) × (4 – 1) ÷ (5 – 1)
= 17.80%