3M Co. (MMM)

Enterprise Value to FCFF (EV/FCFF)

Difficulty: Intermediate

3M Co., FCFF calculation

USD $ in millions

12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Net income attributable to 3M	4,858	5,050	4,833	4,956	4,659
Net income attributable to noncontrolling interest	11	8	8	42	62
Net noncash charges	1,012	1,611	2,369	1,728	1,297
Changes in assets and liabilities	359	(7)	(790)	(100)	(201)
Net cash provided by operating activities	6,240	6,662	6,420	6,626	5,817
Cash interest payments, net of tax¹	138	139	95	127	122
Capitalized interest, net of tax²	8	7	9	11	15
Purchases of property, plant and equipment (PP&E)	(1,373)	(1,420)	(1,461)	(1,493)	(1,665)
Free cash flow to the firm (FCFF)	5,013	5,388	5,063	5,270	4,289

Item	Description	The company
FCFF	Free cash flow to the firm is the cash flow available to the 3M Co.'s suppliers of capital after all operating expenses have been paid and necessary investments in working and fixed capital have been made.	3M Co.'s FCFF increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

3M Co., interest paid, net of tax calculation

USD $ in millions

12 months ended	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Effective Income Tax Rate (EITR)

EITR¹	35.50%	28.30%	29.10%	28.90%	28.10%
Interest Paid, Net of Tax
Cash interest payments, before tax	214	194	134	178	169
Less: Cash interest payments, tax²	76	55	39	51	47
Cash interest payments, net of tax	138	139	95	127	122
Interest Costs Capitalized, Net of Tax
Capitalized interest, before tax	12	10	13	15	21
Less: Capitalized interest, tax³	4	3	4	4	6
Capitalized interest, net of tax	8	7	9	11	15

2017 Calculations

² Cash interest payments, tax = Cash interest payments × EITR
= 214 × 35.50% = 76

³ Capitalized interest, tax = Capitalized interest × EITR
= 12 × 35.50% = 4

3M Co., current EV/FCFF calculation, comparison to benchmarks

Selected Financial Data (USD $ in millions)
Enterprise value (EV)	140,663
Free cash flow to the firm (FCFF)	5,013
Ratio
EV/FCFF	28.06
Benchmarks
EV/FCFF, Competitors
Danaher Corp.	27.11
General Electric Co.	15.83
Honeywell International Inc.	23.46
EV/FCFF, Sector
General Industrials	25.56
EV/FCFF, Industry
Industrials	26.98

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.

3M Co., historical EV/FCFF calculation, comparison to benchmarks

	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013
Selected Financial Data (USD $ in millions)
Enterprise value (EV)¹	142,670	115,293	100,127	109,717	89,419
Free cash flow to the firm (FCFF)²	5,013	5,388	5,063	5,270	4,289
Ratio
EV/FCFF³	28.46	21.40	19.78	20.82	20.85
Benchmarks
EV/FCFF, Competitors
Danaher Corp.	25.94	26.16	21.88	19.11	17.04
General Electric Co.	16.41	11.86	27.52	20.35	21.90
Honeywell International Inc.	23.24	21.27	18.68	19.99	21.05
EV/FCFF, Sector
General Industrials	25.78	15.18	23.62	20.27	20.90
EV/FCFF, Industry
Industrials	26.27	17.92	19.60	19.66	17.36

2017 Calculations

³ EV/FCFF = EV ÷ FCFF
= 142,670 ÷ 5,013 = 28.46

Ratio	Description	The company
EV/FCFF	Enterprise value to free cash flow to the firm is whole company valuation indicator.	3M Co.'s EV/FCFF ratio increased from 2015 to 2016 and from 2016 to 2017.